India’s Gross Domestic Product (GDP) growth is projected to moderate sequentially to 6 per cent year-on-year (YoY) in the third quarter of FY24 as against 7.6 per cent in Q2, according credit rating agency ICRA. Meanwhile, the Reserve Bank of India (RBI) projection stands at 6.5 per cent for the said quarter.
The government is set to release the official data on February 29.
ICRA has also noted that the GVA growth may ease to 6 per cent in Q3 from 7.4 per cent in Q2 FY2024, owing to slowdown in industrial and agricultural sector, amidst an improvement in the services sector.
“Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in Government expenditure and an uneven monsoon are expected to dampen the GDP growth to 6.0% in Q3 FY2024 from 7.6% in Q2 FY2024,” said Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA Ltd.
Contraction of 0.2 per cent in the total spending by the Indian Government and 25 states in the previous quarter may have dulled the GVA growth, ICRA said. It is to be noted that the spending had expanded by 12.1 per cent and 18.3 per cent, respectively, in YoY terms in the first and second quarter of FY24.
After registering an expansion in the government’s non-interest revenue expenditure by 23.2 per cent in Q2 FY24, in the December quarter it fell to 19.1 per cent.
ICRA believes this would dampen the performance of public administration, defence and other services (to +5.0% from +7.6%).
“Moreover, the combined revenue expenditure of the aforesaid 25 state governments witnessed a lower YoY growth of 7.5% in Q3 FY2024, compared to 10.7% in Q2 FY2024,” the report said.
Meanwhile, amid a deceleration in volume growth as reflected in the manufacturing IIP, the projected GVA expansion for manufacturing is at a healthy 10.0 per cent in Q3, which is twice as high as the 4.7 per cent recorded in the first quarter of FY24 but lower than the 13.9 per cent recorded in the September quarter.
Led by four sub-sectors, that is electricity, manufacturing, construction and mining and quarrying, as per ICRA, the industrial GVA growth is expected to record a broad-based moderation to 8.8% in the quarter ended on December 31, 2023 from 13.2% in Q2 FY24.
The credit ratings agency, in its report, also noted an easing in the YoY growth of nine of the 11 investment-related indicators led to a moderation in India’s investment activity in Q3 FY24.
“For instance, the capital outlay and net lending of 25 state governments shrank by 3.9% on a YoY basis, after having surged by 42.4% in Q2 FY2024. Further, the YoY expansion in the Government of India’s (GoI’s) gross capex dipped slightly to 24.4% in Q3 FY2024 (-9.4% in Q3 FY2023) from 26.4% in Q2 FY2024 (+42.4% in Q2 FY2023), despite a low base,” ICRA said.
Engineering goods imports, infrastructure/ construction goods output and CV registrations are few other indicators reporting a slowdown in growth in the said period, as per ICRA.
As for agriculture, forestry, and fishing, ICRA estimates the growth to dip to a muted 0.5 per cent in the December quarter from 1.2 per cent in Q2 FY24, due to decline in output across all major kharif crops as projected by the First Advance Estimates.
This would be the lowest growth print for the sector since Q4 FY2019 (-0.9%), ICRA noted.
Further, the services sector story is rather contrasting to industry and agriculture. As per ICRA estimates, the annual GVA growth to rise to 6.5 per cent in Q3 from 5.8 per cent in the quarter ended on September 30, 2023.
This growth is driven by trade, hotels, transport, communication and services related to broadcasting (to +8.0 per cent from +4.3 per cent).
“Several high frequency indicators related to this sub-sector displayed an improvement in their YoY growth in Q3 FY2024 relative to the previous quarter. This sub-set includes air cargo traffic, ports cargo traffic, GST e-way bills, railway freight, services exports, and the number of telephone subscribers,” ICRA said.
