Economy News

India’s Q2 GDP delivers 7.6% reading, does it indicate a slowdown in H2?

After a strong growth of 7.8 per cent in the first quarter, the second quarter GDP reading too came in significantly higher and well above estimates at 7.6 per cent growth. Though there are expectations of moderation in the second half, economists believe that India is expected to outperform other large economies this fiscal year.

The second quarter GDP growth surprised on the upside. After a strong growth of 7.8 per cent in the first quarter, the second quarter reading too came in significantly higher and well above estimates at 7.6 per cent growth. This takes the first half GDP growth to a robust 7.7 per cent. Though there are expectations of moderation in the second half, economists believe that India is expected to outperform other large economies this fiscal year.

Dharmakirti Joshi, Chief Economist, Crisil

We still expect growth to slow in the second half due to deepening global slowdown; the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal; and erratic weather and an El Niño event creating some downside to agricultural growth prospects. The advance estimates from the Ministry of Agriculture peg kharif production at 4.6 per cent lower than last year. Despite moderation in the second half, India is expected to outperform other large economies this fiscal year.

Aditi Nayar, Chief Economist, Head – Research and Outreach, ICRA Ltd

The YoY growth in India’s GDP underwent a mild sequential easing to 7.6 per cent in Q2FY2024 from 7.8 per cent in Q1FY2024, considerably surpassing our (7.0 per cent) and the consensus estimate for the quarter. The surprise was largely led by the manufacturing sector, with growth surging to a nine-quarter high of 13.9 per cent in Q2 from 4.7 per cent in Q1, led by a favourable base, an uptick in volume growth and an improvement in profit margins owing to continued deflation in input prices. The growth in the construction sector also surprised on the upside. The stronger-than-anticipated industrial performance offset the steep deceleration in the services sector as well as the expectedly muted performance in agriculture, accounting for as much as 52 per cent of GVA growth in Q2 FY2024. On the expenditure side, while GFCF and GFCE witnessed an uptick in growth to double digits in Q2 FY2024, export growth turned positive in the quarter, thereby pushing up GDP growth.

Looking ahead, we project GDP growth to moderate significantly in H2 FY2024, with the continuing headwinds such as the normalising base, weak outlook for agri output and rural demand, tepid global growth, narrowing differentials in commodity prices and transmission of past monetary tightening. Additionally, the possible slowdown in momentum of Government capex as we approach the Parliamentary Elections could constrain growth outcomes. Given the higher than forecast outcome for Q2, we are revising our FY2024 growth forecast to 6.2 per cent from 6.0 per cent.

Rumki Majumdar, Economist, Deloitte India 

Heartening to see the strong rebound in the industry sector. High frequency indicators for the industry sector were pointing to a robust growth in that quarter. The rebound in auto sales, IIP manufacturing numbers, and strong corporate profits in sectors such as capital goods, cement and electronics were all pointing to the strong numbers (13.2 per cent YoY) as we see today.

Exports have performed fairly well after contracting last quarter, backed by improved services exports. The resilience in the US market and better than expected growth outlook could have aided in improved services exports.  

We expected services sector growth to hold up as a few high frequency numbers such as credit growth and flights taken pointed to buoyancy in the sector. The financial, professional and real estate services did exceptionally well in H1 2023-24 and grew 9 per cent YoY.

Personal consumption growth lost momentum and grew only 3.1 per cent YoY. However it could be a possibility that consumers postponed their spending for the upcoming festive months and may have reallocated funds for investments. Higher consumer spending may get reflected in Oct-Dec quarter. Modest agriculture performance was expected as temporal rains impacted kharif crop production.

Nikhil Gupta, Chief Economist, MOFSL Group

Overall, India’s GDP growth remains extremely strong. At 7.7 per cent real growth in H1, it is almost certain that the full-year growth will be revised upwards once again, probably to 6.5-6.6 per cent. As impressive the headline number is, the details are even more impressive. Better growth was almost entirely driven by investments and fiscal spending, with private consumption growth remaining weak (much weaker than our forecast). Our calculations suggest that corporate investments grew 3.3 per cent YoY last quarter, after two declines (in contrast to our expectation of a 3rd successive fall). Notwithstanding higher investments, India’s net imports were well behaved (at 2.4 per cent of GDP vs. 2.3 per cent in Q1) because private consumption grew by only 3.1 per cent YoY (weaker than expected and in Q1). Consequently, it is likely that household financial savings picked up in Q2FY24.One confusion from today’s GDP data, however, is to match strong retail loans with weak private consumption growth.

Vivek Rathi, National Director Research, Knight Frank India 

The 7.6 per cent GDP growth in the September quarter has far exceeded the RBI’s 6.5 per cent estimate for the period, ensuring that India remains on the growth path despite multiple global headwinds arising from economic and geo-political uncertainties. Noticeably, while the share of private consumption in the GDP has decreased, there is a noticeable increase in the share of investments, as reflected in the Gross Fixed Capital Formation (GFCF). This suggests a shift in the economic landscape, where, despite private consumption being a key driver of economic growth, investments are gaining momentum.

The growth in investments holds significance for the revival of the Capital Expenditure (capex) cycle in the economy, which, in turn, supports long-term growth. As a derived demand, the upturn in the capex cycle and the strengthening domestic profile of consumers should prove to be strong drivers of India’s real estate market. The continuation of the real estate upcycles, coupled with the increased focus on infrastructure development will support the sustained growth of the construction sector.

Sanjeev Agrawal, President PHDCCI

We are glad to see that India is emerging as a beacon of economic resilience, and continues to be a bright spot in the global economic landscape. We are optimistic that, despite global headwinds, our economy will continue to grow as one of the fastest among the major economies.

Rohit Arora, CEO and Co-founder, Biz2Credit and Biz2X

India’s impressive 7.6 per cent GDP growth in Q2 of 2023-24, driven by a significant surge in manufacturing and construction sectors, surpasses expectations and demonstrates the economy’s underlying strength. This remarkable performance underscores the resilience of key sectors, reflecting a positive trajectory amidst economic challenges. It reinforces the need for strategic policies that foster sustainable growth across diverse industries, emphasizing the importance of continued momentum to propel India’s economic landscape forward.

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