India’s GDP had grown at a four-quarter high of 7.8 percent in April-June and 6.2 percent in July-September 2022.
The Indian economy is likely to continue its string of better-than-expected growth numbers later this week when the statistics ministry releases data for July-September on November 30. Economists see the GDP growing by 6.8 percent in the second quarter of 2023-24 – with some forecasting it to be as high as 7.2 percent. Meanwhile, the Reserve Bank of India (RBI) has predicted a figure of 6.5 percent.
While the headline growth number is expected to be impressive, it is the underlying numbers that tell the real story. Here, Moneycontrol takes a look at five key aspects of the second quarter GDP data that need to be monitored.
1. Agri slowdown
The agricultural sector held the economic fort during the crushing year that was 2020-21 when the economy contracted by 5.8 percent due to the coronavirus pandemic. And it has maintained its consistency since. However, the second quarter this year could see a sharp decline in growth in gross value added (GVA) to as low of 1-1.5 percent on account of the erratic rainfall India experienced.
In fact, if the farm sector posts a growth rate of under 2.3 percent in July-September, it would be the lowest in four-and-a-half years. In April-June, the agricultural GVA growth was 3.5 percent.
2. Industry revival
The same uneven monsoon that likely resulted in a fall in agriculture GVA growth is expected to have pushed up industry growth in July-September, as poor rainfall in August boosted output in certain segments such as mining and construction.
“High-frequency data suggests that the momentum of construction activity remained healthy in Q2 2023-24, with the sub-par rainfall resulting in relatively lower disruptions in the quarter vis-à-vis what was typically seen in the past,” noted Aditi Nayar, chief economist at ICRA. Power generation also jumped in the last quarter as demand for electricity surged thanks to the heat.
In terms of manufacturing, GVA growth should have also picked up from 4.7 percent in April-June, with industrial growth as per the Index of Industrial Production averaging 6.3 percent in July-September, up from 5.1 percent the previous quarter and 1.5 percent in July-September 2022.
3. Consumption train
The peak of the Indian festival season may be behind us, but consumption demand was rather robust in the lead up to it in July-September. Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics at Barclays, sees upside risks to his full-year growth forecast of 6.3 percent “largely from very strong consumption demand, which is visible across a variety of high frequency data”.
“Indeed, credit growth, electricity consumption, and mobility indicators all paint a picture of economic resilience, hence we believe that the domestic economy will continue to drive growth,” Bajoria said in a note on November 21.
Also Read: Optimism among businesses, but India’s consumption story has cracks
In April-June, growth in private final consumption expenditure had increased to a three-quarter high of 6.0 percent.
4. Net Exports
At a time when India’s trade deficit has been widening, it is crucial to see how net exports – or exports minus imports – are behaving. In April-June, this figure stood at a negative Rs 2.58 lakh crore – the highest in the current GDP series. As such, it was a massive drag on GDP growth. This likely moderated in July-September.
In July-September 2022, India’s net exports – goods and services exports minus goods and services imports – was a massive $46.7 billion. This more than halved to $19.6 billion in April-June this year and stayed around there in July-September too.
According to Soumya Kanti Ghosh, chief economic adviser at State Bank of India, the contribution of net exports to the nominal GDP likely increased to 2 percent in July-September from 1.3 percent in April-June.
5. Nominal growth
While all the focus is on the real GDP growth, the nominal growth – or growth in the GDP without adjusting for inflation – will be an equally important number, especially for government finances.
While real growth in April-June was at a four-quarter high of 7.8 percent, nominal GDP growth fell to 8 percent – the lowest in nine quarters. The last time India’s nominal GDP grew at a slower pace was when it rose by 6.3 percent in October-December 2020 – the year that was hit the most by the pandemic.
“The nominal GDP print will also be under focus as deflator growth has decelerated sharply in 2023-24, with WPI inflation in negative territory. For now, 2023-24 nominal GDP growth is tracking at sub-9 percent,” noted Gaura Sen Gupta, India economist at IDFC First Bank.
Also Read: Small miss in FY24 nominal GDP growth won’t upset Budget targets
In the 2023-24 Budget, the finance ministry assumed a nominal GDP growth of 10.5 percent. This number guides the government’s forecasts for growth in tax collections and the fiscal deficit as a percentage of GDP.