India’s gross domestic product (GDP) grew at a higher-than-expected rate of 7.8% in the final quarter of last fiscal, pushing the economic expansion in the whole of FY24 to a robust 8.2%, according to the provisional estimates released by the National Statistical Office (NSO) on Friday.
For the record, this could give a shot in the arm to the Narendra Modi government ahead of the last phase of general election on Saturday. However, many analysts reckon enough evidence wasn’t available yet of broad-based economic revival, and cited the tepid consumption scenario and statistical discrepancies.
As per the NSO, the FY24 GDP growth came in sharply higher than 7% in FY23, driven by a resurgent manufacturing and steady growth in the construction (both sectors grew at 9.9%), and surge in mining activities (7.1%), even as the primary sectors faltered and the key services slowed.
To be sure, the FY24 growth was lower than 9.8% seen in FY22, but that was on shrunken base caused by the pandemic. A higher growth rate than that of last fiscal, shorn of such statistical obfuscation, was last seen in FY17 (8.3%).
The latest headline GDP numbers got a big boost from buoyant indirect taxes (GST receipts) and lower subsidy outgo. The gross value added (GVA), a more accurate gauge of the economy grew at substantially lower rates than the GDP in both Q3 (difference of 1.8 percentage points) and Q4 (1.5 pps) of FY24, because of this factor. Also, the national income data was fraught with certain incongruities, like subdued consumption (private final consumption expenditure or PFCE grew just 4% on year in both Q3 and Q4 of FY24), and a sequential slowing of GVA through the year (from 8.3% in Q1 to 7.7% in Q2, 6.8% in Q3 and 6.3% in Q4). Besides, the growth in gross fixed capital formation (GFCF), close proxy of investment demand, fell from 11.7% in Q2 to 9.7% in Q3, and further to 6.5% in Q4.
At 7.8%, the growth rate in Q4FY24 was about 100 basis points (bps) higher than market consensus. An FE poll of 19 economists had projected the March quarter growth to be around 6.8%. The FY24 growth came out to be higher than 7.8% projected by economists and 7.6% by the NSO itself in its second advance estimates (SAE).
Finance minister Nirmala Sitharaman said on X: “Today’s GDP data showcases robust economic growth. This remarkable GDP growth rate is the highest among the major economies of the world.”
“It is worthwhile to note that the manufacturing sector witnessed a significant growth of 9.9% in 2023-24, highlighting the success of the Modi government’s efforts for the sector,” she posted. The minister added that the “growth momentum will continue in the third term of the Narendra Modi-led government”.
“GDP growth surprised again with the wedge with GVA (supply side) continuing to remain high due to higher growth in net taxes,” said Sakshi Gupta, principal economist, HDFC Bank. Net taxes growth in Q4FY24 came in at 22.2% against 7.7% in Q4FY23 and 31.2% in Q3FY24.
“The high net taxes also align with governments’ high cash balances in Q4FY24 and the lower fiscal deficit print of 5.6% of GDP in FY24,” Gupta said. Subsidy expenditure in Q4FY24 was lower by 24.2% on year in Q4FY24 against 53.6% in Q3FY24.
Economists also pointed out that discrepancies, “the unexplained component of GDP”, added to growth in the fourth quarter. “These discrepancies also explain the notable divergence between GDP and GVA growth,” said Sujan Hajra, chief economist, Anand Rathi. Discrepancies added around 2.5 percentage points growth in Q4.
The secondary sector grew at 8.8% in Q4FY24, lower than 10.7% in Q3FY24, and the tertiary sector (services) grew at 6.7% in Q4FY24 compared to 7.1% in Q3FY24. The primary sector (agriculture, mining) reported modest growth of 1.1% during the December quarter. The agriculture GVA growth fell sharply from 4.7% in FY23 to 1.4% in FY24.
Net exports, for the first time in FY24, added to GDP growth by 0.1 percentage points in Q4, reflecting reduction in trade deficit and surge in services surplus, explained Gaura Sen Gupta, chief economist, IDFC FIRST Bank. Sen Gupta said that Q4FY24 growth was led by private consumption expenditure and investment in contribution terms.
The share of PFCE eased to 52.9% of GDP in the March quarter from 58.7% in December, but that of GFCF rose to 33.2% from 32.1%. Both these components added 2.2 percentage points each to overall growth in Q4.
For the full year, however, PFCE growth came in at 4%, lower than 6.8% in FY23. A lower PFCE growth in FY24 means, the growth in the previous was an investment driven growth– which grew 9% in FY24 against 6.6% in FY23.
“The investment growth has largely been driven by GoI’s capital expenditure growth,” said DK Srivastava, chief policy advisor, EY India. In FY24, capital expenditure grew 28.8%. “This large investment push by the GoI is the main growth driver resulting in India doing well in spite of continuing global tailwinds,” noted Srivastava. The GFCF’s share in GDP was 33.5% in FY24, more than 33.3% in FY23.
In nominal terms, the GDP grew 9.9% in Q4FY24, lower than 10.3% in Q3FY24. And for the full year, the nominal growth came out to be 9.6% in FY24, against 14.2% in FY23.
FY24 saw a much lower wedge between nominal GDP and real GDP growth rates, about 1.4 pps, compared to 7.2 pps in FY23. This is mainly due to a low deflator. FY24 observed WPI inflation averaging at (-)0.7% against 9.6% in FY23, the main reason why the deflator turned out to be unusually low. A low deflator also contributed to GDP growth in FY24, say economists.
ICICI Securities Primary Dealership senior economist Abhishek Upadhyay said that even though FY24 growth was buoyed by exceptionally weak deflator but true growth was still likely in the 6.5-7% range, may be closer to upper bound and that is a “strong performance”.
“We continue to expect growth in the current fiscal at around 6.5%, with more balanced performance seen across sectors,” said Upadhyay.
Anitha Rangan, economist, Equirius Securities, said that a revival in private consumption perhaps led by agri (and therefore for rural) is positive for private capex and capital formation going forward. Srivastava expects FY25 real GDP growth to be in the range of 7 to 7.5%, due to high capital expenditure growth.