A Moneycontrol poll had predicted India's economy would expand by 7.3% in the second quarter of the financial year 2023-24 (July-September). However, official government data later revealed that the nation's Gross Domestic Product (GDP) actually grew by a stronger 7.6% during that period, surpassing both the poll's estimate and many other analyst expectations. This robust performance solidified India's position as the world's fastest-growing major economy.
Stronger Growth Outperformed Expectations
Economists surveyed by Moneycontrol had provided a consensus forecast of 7.3% for India's economic growth in the July-September 2023 quarter. This projection came as analysts closely watched for signs of continued momentum in the Indian economy. Other independent market surveys had also estimated growth to be around 6.8% for the same quarter. The Reserve Bank of India (RBI) had also projected a 6.5% growth rate for Q2 FY24.
When the National Statistical Office (NSO) released the official figures on November 30, 2023, the actual 7.6% GDP growth for Q2 FY24 significantly outperformed these predictions. This figure was only slightly lower than the 7.8% growth recorded in the preceding April-June quarter (Q1 FY24). The stronger-than-expected data highlighted the underlying resilience and momentum within India's domestic economic activities.
Key Drivers and Sectoral Performance
The impressive growth in Q2 FY24 was largely driven by a strong showing in the manufacturing and investment sectors. Manufacturing, in particular, saw a significant boost, expanding by 13.9% year-on-year. This strong industrial performance was a key factor in the overall economic acceleration. The construction sector also registered healthy growth, contributing positively to the GDP figures.
Gross Fixed Capital Formation (GFCF), a critical measure of investment in the economy, rose by 11% compared to the previous year. Government capital expenditure, both at the central and state levels, played a crucial role in supporting this investment growth. The pick-up in the real estate sector also provided additional support to GFCF. These investment activities signal increased confidence and capacity expansion within the economy.
Mixed Signals in Consumption and Agriculture
Despite the overall strong performance, some sectors showed more moderate growth. Private consumption, a major component of demand, grew at a slower pace of 3.1% in Q2 FY24, compared to 6.0% in the previous quarter. This moderation was partly attributed to softer rural demand, potentially influenced by an uneven monsoon season.
The agriculture sector's growth also slowed significantly during this period. A patchy monsoon played a role in dampening farm output, which in turn affected rural incomes and consumption patterns. The services sector, while still contributing substantially to growth, saw its expansion moderate to 5.8% year-on-year from 10.3% previously. However, specific sub-sectors like financial, real estate, professional services, public administration, and defense continued to show robust performance.
Looking Ahead
The stronger-than-expected Q2 FY24 growth led many economists and institutions to anticipate upward revisions to India's full-year GDP forecasts. Analysts noted that this robust momentum in the first half of the fiscal year boded well for the overall annual growth expectations.
However, experts also pointed out potential challenges, including global uncertainties and the subdued growth in the agricultural sector. While the economy demonstrated strong domestic demand, a sustained high growth trajectory would depend on continued investment, a pickup in private consumption, and favorable external conditions. The government's focus on capital expenditure is expected to remain a key driver for economic activity in the coming quarters.
