Organization of Petroleum Exporting Countries or OPEC stated in a latest monthly update that the latest data for India shows stronger-than-anticipated 4Q23 growth of 8.4%, y-o-y. The 2Q23 and 3Q23 quarterly growth figures stand at 8.2% and 8.1%, y-o-y, respectively. This places India's annual growth rate in 2023 at 7.7%, y-o-y, up from a previously estimated 6.8%, y-o-y. The strong 4Q23 growth is attributed to sustained strong fiscal policy spending aligned with the government's Production Linked Incentive (PLI) schemes, focusing on 14 key economic sectors, most notably technology and pharmaceuticals. A weak monsoon season leading to unusually dry weather elevated food price inflation in 4Q23, and the agriculture sector registered subdued growth on an annual basis. On a quarterly basis, the agricultural sector declined in 4Q23 by 0.8%, y-o-y.
The robust 4Q23 growth figures are expected to carry momentum into 1H24, driven by continued government-led policies in key sectors. The strength in manufacturing, as indicated by the latest release of the PMI index numbers, and the continued momentum in the services sector are key factors in driving near-term economic growth. The strength in these sectors is expected to prevail over the agriculture sector's weakness, grappling with the low water reservoir levels on the back of the weak monsoon season late last year, leading to relatively lower crop output.
At the sequential level, annual economic growth rates are projected to be around 6.8% in 1H24, followed by a slight softening of the annual rate to 6.4% in 2H24 during the post-election cycle. The expected increase in government spending in the lead-up to elections is likely to be restrained this year due to strong expectations that the incumbent administration will remain in power. While food and beverage price inflation is decelerating, it remains elevated.
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