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In the fourth quarter of the last financial year (Q4FY24), India’s GDP grew by 7.8 per cent Y-o-Y, showcasing a continued robust performance, just shy of the 8 per cent streak of the last three quar–ters. We also see an upward revision to the previous quarter’s GDP growth to 8.6 per cent Y-o-Y, primarily due to approximately 50 basis points upward revision of private consumption spending. This marks a continued momentum to the economic activity this year and beats all market analyst expectations.
The data for the fourth quarter takes FY24’s GDP growth to 8.2 per cent Y-o-Y, which is 0.4 percentage points higher than our projected estimate for the year. It beats the second Advance Estimate that was at 7.6 per cent and the Reserve Bank of India’s estimate of 7.3 per cent.
The data points to mixed but encouraging results. By the expenditure-approach method, GDP growth in Q4 was aided by a steady growth in private consum–ption spending and robust export growth. High-frequency indicators for this quarter suggest that improvement in private consum–ption spending was broad-based. Two-wheeler and tractor sales in the quarter had reported healthy growth, while FMCG data pointed to improved rural consumption. At the same time, domestic air pass–enger traffic and IIP of consumer durables (11.2 per cent Y-o-Y) pointed to healthy urban demand.
Exports grew by a whopping 8.1 per cent, highest in FY24. This helped in improving the contribution of net exports to GDP. What is noteworthy is that high-end manufacturing products such as drugs and pharmaceuticals, organic & inorganic chemicals, engineering goods, and electronics goods recor–ded the highest-ever exports in Q4 this year, contributing significantly to the overall goods exports.
Gross fixed capital formation grew by 6.5 per cent Y-o-Y, which points to a slowdown in the investment growth momentum seen through the rest of the year. Over the past three quarters, investment growth remained above 8.5 per cent Y-o-Y. A slowdown this quarter could be an outcome of uncertainties associated with geopolitical tensions and national elections, weighing on investment decisions. We expect this to be transitory and strong growth will likely pull investment back up as soon as the new government is formed.
The government consumption spending improved marginally by 0.9 per cent, after contracting by 3.2 per cent Y-o-Y last quarter.
Evidently, the government has been consolidating its expenses and focusing more on capital expenditure, which bodes well for future growth prospects and investors’ confidence. From the production side, GVA grew 6.3 per cent Y-o-Y in Q4. The divergence between GDP and GVA narrowed marginally this quarter relative to the past quarter (1.8 per cent) but continued to remain high at 1.5 per cent. This is probably an indication that the demand side (as measured by the expenditure-approach method) is growing faster than the supply side (denoted by the production approach). The annual GVA growth was at 7.2 per cent, higher than the second Advanced Estimate of 6.9 per cent.
Industrial growth recorded 8.8 per cent, with the manufacturing sector growing at 8.9 per cent and the construction sector growing at 8.7 per cent. Services kept up the pace and expanded by 6.7 per cent, with strong growth of 7.6 per cent in finance, insurance, real estate, and business services. The agricultural and forestry sector growth remained muted at 0.6 per cent, while the previous quarter’s growth was revised up to 0.4 per cent.
The government reported a fiscal deficit of 5.63 per cent in FY24, which is lower than the revised estimate of 5.8 per cent announced during the Budget. Prudent fiscal measures and a determined effort to control spending by the government aided in reducing the overall fiscal deficit.
Looking ahead, we are optimistic about growth in the next financial year. While the first quarter of FY25 may see modest growth due to election activities, we believe the underlying strength in economic activity (as is evident from FY24’s GDP growth) will help India get back on a strong growth trajectory. Besides, synchronous global growth and improved global liquidity conditions (as central banks in the West ease their monetary policy stance) later this year will provide a further boost to exports.
All eyes are now on the incoming new government and the forthcoming Budget announcements, after which India is expected to grow unfettered.
The author is a Director and economist with Deloitte India
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
