India has retained its tag of being the fastest growing major global economy.Incidentally, S&P Global recently revised upwards its GDP growth forecasts for this fiscal from 6% to 6.4%. The Indian economy is on a strong footing led by domestic consumption, feel economists.
India GDP Q2 data explained
Ranen Banerjee, Partner, Government Sector Leader at PwC India states that the Q2 GDP data has definitely surprised on the positive side. “This better-than-expected GDP growth has come largely on the back of manufacturing and mining which had contracted in the same quarter last fiscal. Construction too has shown a decent growth of over 13%, led largely by front loading of expenditure by the government on major projects,” Banerjee tells TOI.
According to DK Srivastava, Chief Policy Advisor, EY India, on a quarterly basis, the growth is driven by government final consumption expenditure (GFCE) and gross fixed capital formation (GFCF) on the demand side. These segments posted a quarterly growth of 12.4% and 11% respectively.
On the output side, manufacturing has recovered to show a growth of 13.9% in 2QFY24, a nine-quarter high. This is also corroborated by a robust performance of IIP and PMI manufacturing. Other high performing sectors include construction and public administration, defence et al. with growth rates of 13.3% and 7.6% respectively in 2QFY24.
Importantly, the large contact and employment intensive service sector namely, trade, transport, hotels et al. has shown a recovery with a growth of 11.3% in Q2 over the corresponding pre-Covid quarter of FY20. With this, the magnitude of this sector in the first half was higher by 4.5% when compared to the corresponding magnitude in H1 of FY20.
The GDP growth confirms that the Indian economy is well on course to meet, if not exceed, the annual growth target for FY24 at 6.5% as projected by the RBI earlier in October 2023, says Srivastava.
Indian economy to continue outperforming?
Srivastava of EY believes that driven largely by domestic demand, India would easily confirm its position as a global growth leader, with its growth outpacing that of other large economies as these continue to combat inflation through higher interest rates.
PwC’s Ranen Banerjee sounds a note of caution saying that going ahead, one will need to watch out for the agriculture sector, since the 1.2% growth number is on the lower side. If this does not pick up in Q3, it may have a negative impact on rural demand, he says.
“Also, while the manufacturing sector has shown good growth, the private final consumption expenditure has only grown 3.1% YoY. Companies may have stepped up manufacturing in Q2 in anticipation of festive season demand, so it’s important to see whether any possible inventory pile up at the distributor end will impact manufacturing growth in the coming quarters,” Banerjee adds.
CRISIL’s Joshi expects the GDP growth to slow down in the second half due to deepening global slowdown; the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal; and erratic weather and an El Niño event creating some downside to agricultural growth prospects. However, he believes that despite moderation in the second half, India is expected to outperform other large economies this fiscal year.