Q1 GDP Data Good But Challenges Ahead: Experts
India’s economy grew 7.8 per cent in the first quarter of the fiscal year 2024, almost matching the Reserve Bank of India’s estimate, according to official data released on Friday. The growth was driven by a strong recovery in private consumer and investment spending, which rose by 6 per cent and 7.8 per cent respectively. The growth came amid a series of achievements for India in August, including the successful landing of Chandraayan-3 on the moon and the first gold medal at the World Athletics Championships 2023.
However, government spending and exports contracted in the quarter, reflecting the government’s fiscal prudence and the global slowdown. Exports declined after eight quarters of double-digit growth, raising concerns about the external demand for India’s goods and services, experts analysing the Q1 data said. One of the highlights of this growth trajectory is the simultaneous advancement of the services sector and the revival of manufacturing, signifying the coordinated efforts of various sectors and governmental policies in driving the nation's economic progression, said one expert. Despite the prevailing elevated interest rates, the Indian economy not only navigated the challenges but also harnessed opportunities to fuel growth, he added.
The gross value added (GVA) growth of 7.8 per cent was supported by a robust performance of the services sector, which grew by 10.3 per cent year-on-year, backed by consumer spending on real-estate and trade and transport sectors. Manufacturing and construction activities also picked up, indicating a revival of private investment, said experts.
Agriculture, however, slowed down to 3.5 per cent, owing to erratic and delayed rains across the country. This could worsen food inflation, which could weigh on consumer spending and investment in the coming months, said experts.
Expert Talk
Rumki Majumdar, Economist at Deloitte India, said that India will have to rely on domestic demand growth and private consumption and investment spending will be key to growth sustainability. She added that the upcoming festive demand till November and year-end upbeat will further help boost spending.
In light of the current economic trajectory, Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, expressed optimism about India's economic future. He noted that the strong growth in services coupled with the revival of manufacturing paints a promising picture for sustained growth in the times ahead.
According to D.K. Srivastava, Chief Policy Advisor at EY India, there was not much difference between the real GDP growth of 7.8 per cent and the nominal GDP growth of 8 per cent, which affected the fiscal position. He said that this implied that the inflation measured by the implicit price deflator (IPD) was only 0.2 per cent, which was the lowest level in fifteen quarters. He cautioned that low nominal GDP growth would cause low tax revenue growth, as evidenced by the Centre’s gross tax revenues (GTR) having a low buoyancy of 0.4 in the first quarter. He stated that the Centre’s GTR grew only by 3.3 per cent in the first quarter and by 2.8 per cent in the first four months of 2023-24. He observed that even though the central government tried to boost capital expenditure, government revenue expenditure growth was weak, leading to a negative growth of 0.7 per cent in government final consumption expenditure (GFCE).
Ranen Banerjee, Partner, Economic Advisory Services at PwC India, said that the Q1 FY24 GDP growth was as expected. He explained that the factors that contributed to the strong growth were lower input prices due to softer commodity prices, less disruption in mining due to less rainfall in June, sustained momentum in services, early spending on capital expenditure by the government and a smaller negative impact from net exports. He added that achieving the projected 6.5 per cent annual growth in GDP for FY24 would be difficult with a very dry August and a likely dry September. He said that this would affect not only the output from existing crops but also the winter harvest. He also said that the global challenges were increasing and the moderation in private consumption was likely to reduce the growth momentum.
Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA said: "We expect GDP growth to moderate over the next few quarters, on the back of what is likely to be a below-normal monsoon, narrowing differentials with year-ago commodity prices, and a possible slowdown in momentum of Government capex as we approach the Parliamentary elections. For now, we are maintaining our FY2024 GDP growth estimate at 6.0 per cent, lower than the MPC’s projection of 6.5 per cent for the fiscal."
