GDP grows 7.8% in March qtr, full-year reading 8.2%

The Indian economy expanded by a faster-than-expected 8.2% in the fiscal year 2023-24 according to the provisional estimates released by the National Statistical Office (NSO) on Friday on higher public spending, manufacturing growth, and lower spends on subsidies, even as fiscal deficit came in at a lower-than-expected 5.6% for 2023-24 against the 5.8% number given in the revised estimates of the interim budget presented in February.

The data shows that India ended 2023-24 as a $3.5 trillion dollar economy.

The numbers will be music to the ears of the government, financial markets and international financial institutions, and will likely spur markets when they open Monday, although Saturday’s exit polls will also have some bearing on how they behave.

To be sure, a detailed reading of the GDP data calls for at least a degree of sobriety in assessing the Indian economy’s performance in the year that was. This is mainly on account of some technical factors which might have generated statistical tailwinds for the headline growth number.

The 8.2% GDP growth number for the Indian economy is 60 basis points – one basis point is one hundredth of a percentage point – higher than the 7.6% print which was given in the second advanced estimates released by NSO on February 29. The gap is a massive 1.2 percentage point from the 7% number which was given by a Bloomberg poll of economists.

On a compound annual growth rate (CAGR) basis, the second Narendra Modi government has seen a growth of 4.4% in GDP in the five-year period between 2018-19 to 2023-24. While this is the lowest for all governments since the Atal Bihari Vajpayee government for 1999-2004, it needs to be kept in the mind that the overall CAGR number was dragged down by the 5.8% contraction in 2020-21 on account of the pandemic. Post the pandemic, the economy has expanded by 9.7%, 7%, and now 8.2%.

The CAGR of GDP in 10 years of the Narendra Modi government from 2013-14 to 2023-24 now stands at 5.9% against 6.8% under the 10-year period of the United Progressive Alliance (UPA) government, but again, this number is dragged down by the Black Swan event of the pandemic.

Union finance minister Nirmala Sitharaman summed up the development as a remarkable achievement of the Modi government.

The Prime Minister, on a silent meditation retreat, echoed that on X. “As I’ve said, this is just a trailer of things to come,” he said on X.

GDP growth in the quarter ending March 2024 was 7.8%, which is 80 basis points higher than what was projected by a Bloomberg forecast of economists. The Gross Value Added (GVA) number of 6.3% for the March quarter in the NSO data is not very different from the Bloomberg forecast of 6.2%. This means that it is lower subsidy spending – GDP is GVA plus indirect taxes less subsidies – which has pulled up GDP growth print. The December quarter numbers also saw a large gap of 1.8 percentage points between the GDP and GVA growth numbers with the former being 8.6%. GVA captures the aggregate of sector-wise growth and is therefore a better measure of actual economic activity. That said, a GVA of 7.2% for the entire year, is itself a strong number.

Another reason for the high GDP growth is a 9.9% growth in manufacturing, which, when seen in isolation appears pretty impressive, although some of it could be on account of inflation adjustment issues due to a prolonged period of low, even negative wholesale inflation in 2022-23 and 2023-24. The fact that nominal growth number for manufacturing is 1.9 percentage points lower than the real growth number underlines this point. The only other sectors which gained growth momentum between 2022-23 and 2023-24 were mining (1.9% to 7.1%), and construction (9.4% to 9.9%). Growth in agriculture and allied activities went down from 4.7% to 1.4% which suggests that rural India might have seen subdued income growth in an election year.

When seen from the expenditure side, the latest data is on expected lines. Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE) lost growth momentum between 2022-23 and 2023-24, the respective numbers being 6.8% to 4% and 9% and 2.5%. However, Gross Fixed Capital Formation (GFCF) – it measures investment expenditure in the economy – growth increased from 6.6% to 9% during this period. Given the fact that the government push to capex might not grow at the same pace going forward, future growth in the Indian economy will depend on private capex gaining momentum which in turn will need a rejuvenation of mass consumption demand.

“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. Many high-frequency indicators indicate that the Indian economy continues to remain resilient and buoyant despite global challenges. India’s growth momentum will continue in the third term of PM Shri @narendramodi-led government,” Sitharaman said in a post on X.

A government official with direct knowledge of the matter, requesting anonymity, said India’s future growth prospects appear bright as the forecast of a good monsoon bodes well for the agricultural sector. “Domestic economic activity remains resilient, backed by strong investment demand and upbeat business and consumer sentiments,” he said, adding that strong corporate and bank balance sheets and government’s continued capex push are other positive factors. “Strategic trade agreements like the India-EFTA Trade and Economic Partnership Agreement (TEPA) signal India’s commitment to expanding its global trade footprint,” he added.

He, however, cautioned about some external factors that pose a downside risk. “Geopolitical tensions pose substantial downside risks. Divergence of monetary easing paths of major central banks adds to policy uncertainty. Frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices.”

Experts said that they expect the steady growth trajectory to continue next fiscal.

“Despite today’s stronger-than-expected print and consequent high base, we maintain our FY24-25 GDP growth forecast at 7.0%. We expect the steady domestic growth momentum to continue, supported by 1) continued increases in government capex (albeit at a slower pace), 2) the much-anticipated rising private investment, 3) some recovery in rural consumption, even if cylical, and 4) recovery in exports with the uptick in global trade. That said, our monetary policy expectations suggest rates will remain elevated for longer, creating some headwinds for growth, as reflected in our forecast moderation in growth between FY 23-24 and FY 24-25. In addition, softening GVA for three straight quarters (Q1-Q3 FY24), suggest growth could ease from FY24,” said Shreya Sodhani, regional economist, Barclays.