India's GDP growth in Q4 likely slowed to at least a four-quarter low

NSO to release Q4 growth numbers, FY24 provisional estimates on Friday

After experiencing strong growth rates of above 8 per cent for three consecutive quarters, economic growth is expected to have moderated to at least a four-quarter low in the March quarter of FY24 due to a sequential slowdown in key growth drivers, according to analysts.

During the first three quarters of FY24, the economy grew 8.2 per cent, 8.1 per cent, and 8.4 per cent, respectively. The National Statistical Office (NSO) has projected the FY24 growth rate at 7.6 per cent, implicitly assuming 5.9 per cent growth in the fourth quarter of FY24. 

The NSO will release the Q4 growth numbers and the provisional estimates of gross domestic product (GDP) data for FY24 on Friday.
 

High-frequency indicators like electricity demand (8.1 per cent) and steel consumption (10.6 per cent), which can be used as a proxy for industrial-sector growth, saw sequential moderation, but still rang up robust growth during the fourth quarter.

Meanwhile, other indicators like the purchasing managers’ index (PMI) and cement production (8.5 per cent) accelerated in the Q4. “Though growth in manufacturing is expected to moderate in Q4, it will still be high,” said Paras Jasrai, senior economic analyst, India Ratings.

“It is being led primarily by strong growth in companies’ profits due to still prevailing low commodity prices. However, lower growth in manufacturing IIP (index of industrial production) volumes suggests growth in manufacturing GVA (gross value added) is likely to have eased in Q4. Overall, it is expected growth would have eased to 6.2 per cent in Q4,” said Jasrai. 

Proxy indicators like two-wheeler sales (25.4 per cent), passenger vehicles (28.3 per cent), and the consumption of petrol and diesel (5.46 per cent) have shown acceleration during the quarter. However, domestic passenger aviation has seen deceleration (5.2 per cent).

“In Q4, some signs of recovery are visible in rural demand with fast-moving consumer goods sales growth (volumes) in rural areas exceeding those in urban areas for the first time in two years. Two-wheeler sales growth remains strong for the second consecutive quarter. However, urban consumption, which has been the key support for private consumption, remains mixed in Q4, with slowdown in FMCG sales growth (volume). That said, other indicators have held up, such as passenger-vehicle sales, luxury items and electronic payments indicators. Our estimate is that growth would moderate to 7.1 per cent in Q4,” said Gaura Sen Gupta, chief economist, IDFC Bank.

Echoing similar views, Aditi Nayar, chief economist at ICRA Ratings, said notwithstanding the overhang of the unfavourable 2023 monsoon rains on agricultural output, there were some green shoots suggesting that a nascent revival in rural demand might be on the anvil. 

“Some listed FMCG players pointed to recovery in the rural economy, particularly in the non-food segment, in Q4. This can be partly attributed to the uptick in demand during the marriage season as well as a low base. Additionally, urban consumption is expected to have remained robust, albeit uneven. It is projected that GDP expansion will moderate to a four-quarter low 6.7 per cent in Q4,” added Nayar.

Driven by the central government, the capex cycle is likely to have remained robust in the fourth quarter, with the construction sector expected to take forward the growth momentum. 

“Supported by the central government and state governments as they look to complete the investment cycle, capital formation is expected to remain robust. Also, there are signs of green shoots in private capex as well. Overall, investment in Q4 is expected to remain robust and lead overall growth to 7.2 per cent in Q4,” said Madan Sabnavis, chief economist, Bank of Baroda.