India’s Q1 FY24 GDP Growth Reaches 7.8%, Outpaces Major Economies
India’s economy is on an upward trajectory, with Q1 FY 2024 GDP growth surging to 7.8 percent, surpassing major economies like the U.S., UK, and China. Meanwhile, Moody’s also revised its GDP growth projection for India to 6.7 percent for 2023, citing positive momentum on the back of service sector expansion and strong capex, but also expressed concerns about monsoon impact and inflation. On its part, India’s central bank, the RBI, is cautious on monetary policy, keeping the repo rate unchanged. India’s strong domestic demand and stable core inflation underline economic resilience.
India’s Q1 FY 2024 GDP growth at 7.8 percent
India’s gross domestic product (GDP) has surged, reaching a robust growth rate of 7.8 percent year-on-year in the first quarter of fiscal year 2023-24 (Q1 FY24). This impressive expansion, per latest available official data, marks a significant improvement compared to the 6.1 percent growth registered in the preceding quarter, which ended in March 2023. Notably, India’s economy had recorded a remarkable 13.5 percent growth during the same quarter in the previous year.
Official data released by the National Statistical Office (NSO) indicates that India’s real GDP, adjusted for constant prices, reached approximately INR 40.37 trillion (US$490 billion), in contrast to INR 37.44 trillion (US$450 billion) in Q1 2022-23, demonstrating a notable 7.8 percent growth compared to the 13.1 percent recorded in the corresponding quarter of the previous fiscal year. Furthermore, India’s gross value added (GVA), which reflects supply-side growth and is calculated by subtracting net product taxes from GDP, also expanded by 7.8 percent during April-June 2023, reinforcing the overall economic uptrend.
Outshining global peers
In a global comparison, India’s Q1 FY24 GDP growth surpasses that of several major economies. The United States reported a 2.1 percent growth in the April-June 2023 quarter, the United Kingdom witnessed a modest 0.4 percent increase in GDP, while China recorded a growth rate of 6.3 percent. During this period, Japan reported a strong 6 percent year-on-year growth, while Germany faced a slight contraction of 0.2 percent.
Sectoral analysis: Agriculture thrives, manufacturing slows
Within various sectors, India’s agriculture sector demonstrated a noteworthy growth rate of 3.5 percent, marking an improvement from the 2.4 percent growth seen in the April-June quarter of 2022-23. However, the manufacturing sector experienced a deceleration in growth, recording a 4.7 percent increase in the first quarter of the current fiscal year, compared to 6.1 percent in the same period the previous year.
The GDP growth trajectory over the past year has seen fluctuations, with growth rates of 6.1 percent in the January-March quarter of 2022-23 and 4.5 percent in the October-December period.
Investment activity: Gross fixed capital formation (GFCF)
Gross fixed capital formation (GFCF), an indicator of investment activity in the country, rose by 7.95 percent during the June 2022 quarter, though it was lower compared to the 20 percent growth recorded a year ago. GFCF accounts for 34.7 percent of India’s GDP.
Private final consumption expenditure (PFCE) grew by 5.9 percent, while government final consumption expenditure (GFCE) contracted by 0.71 percent during Q1 FY24 over Q1 FY23.
Consumption and fiscal update: PFCE, GFCE, and fiscal deficit
Private final consumption expenditure (PFCE) expanded by 5.9 percent, while government final consumption expenditure (GFCE) contracted by 0.71 percent during Q1 FY24 compared to Q1 FY23. In a separate fiscal update, India’s fiscal deficit during April-July 2023 stood at INR 6.06 trillion, equivalent to 33.9 percent of the full-year target.
Economists weigh in on India’s growth outlook
Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA, noted that while a favorable base effect contributed to India’s GDP growth of 7.8 percent in Q1 FY2024, it fell slightly below expectations of 8 percent. Nayar suggested that GDP growth is likely to moderate in the coming quarters, driven by factors such as a potentially below-average monsoon, narrowing commodity price differentials compared to the previous year, and a potential slowdown in government capital expenditure as parliamentary elections approach. ICRA maintains a GDP growth estimate of 6 percent for FY2024, slightly below the monetary policy committee’s (MPC’s) projection of 6.5 percent.
Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, observed that the Q1 FY24 GDP growth of 7.8 percent aligns with expectations. He attributed this growth to the services and construction sectors and highlighted that investment growth continues to outpace consumption growth. Rakshit anticipates that this trend will persist over the next few quarters, with GDP growth likely to be lower than the Q1 figure for the remainder of the year.
Moody’s positive outlook for India: 2023
Meanwhile, Moody’s Investor Service has revised its 2023 GDP growth projection for India, raising its forecast to 6.7 percent, up from the previous estimate of 5.5 percent. This upward adjustment is based on Moody’s own assessment of India’s strong performance in Q2, driven by expansion in services and capital expenditures.
Moody’s recognizes the robust underlying economic momentum in India, highlighting the positive momentum in the country’s economic landscape. The agency also acknowledges the potential for further upside in India’s economic growth.
Moody’s has also highlighted India’s strong domestic demand and believes that rate hikes are unlikely as long as core inflation remains relatively stable.
Challenges and concerns
While India’s economic momentum remains robust, there are certain challenges and concerns on the horizon:
- Monsoon season and inflation: Concerns have arisen due to below-average rainfall during India’s monsoon season, potentially leading to higher food prices. Additionally, the strength of El Niño in late 2023 and early 2024 could further impact agricultural commodity prices.
- Monetary policy considerations: The Reserve Bank of India’s monetary policy committee has opted to keep the repo rate unchanged, citing rising food price inflation and uncertain weather conditions. Monetary policy easing considerations are expected to be deferred to early next year.
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