India’s GDP surged to a four-quarter high of 7.8 per cent in April to June (Q1) quarter of FY24 on an annual basis, data released by the National Statistical Office (NSO) showed on August 31, 2023.
The growth can be attributed to central and state governments opening up their wallets for capex, stronger consumption demand and higher activities in the services sector.
A median forecast of an ET poll of 20 economists had pegged the growth rate at 7.8 per cent for the first quarter of this financial year (FY24) that started April 1, 2023. The estimated range in the poll was 7.5-8.5 per cent.
Meanwhile, the Reserve Bank of India (RBI) had predicted a growth rate of 8 per cent.
While India’s GDP grew 6.1 per cent in the March quarter of FY23, it had grown at 7.2 per cent in FY23 as a whole.
Continued improvement in services demand and investment activity, and lower commodity prices spurred growth while unseasonal heavy rains, a lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth in Q1FY24.
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Economists had attributed the growth with an improvement in India’s services sector. “High-frequency indicators for air and rail travel confirm continued steady demand in the transport sector, although capacity constraints, along with a catchup to pre-Covid levels of activity, mean some moderation in momentum compared with the previous quarter,” Rahul Bajoria, head, EM Asia, ex-China, economics, Barclays, had said. The firm had pegged a growth rate of 7.8 per cent.
“Economic activity in Q1 FY-2024 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure,” noted Aditi Nayar, chief economist at ICRA, while forecasting a growth rate of 8.5 per cent.
Capex push is another significant factor which contributed to the GDP growth. The Narendra Modi-led government has continued its focus on capital expenditure in recent months. Capital expenditure increased to around Rs 2,78,500 crore during April–June 2023 from the Rs 1,75,000 crore spent during the same period last fiscal year.
The central government likely spent 27.8 per cent of the budgeted amount in Q1, while state governments’ spend was 12.7 per cent. Further, capex spending by the Centre and 23 states (excluding Arunachal Pradesh, Assam, Goa, Manipur and Meghalaya) was up 59.1 per cent and 76 per cent on an annual basis.
The RBI expects India to grow at 6.5 per cent in FY24.However, uneven monsoon, peppered with El Nino worries may affect India’s consumption revival, in a scenario where global growth rates are slowing.
The RBI hiked benchmark lending rates by 250 bps since last May before taking a breather for two meetings. While the RBI, and Finance Ministry have dubbed the recent vegetable price spike a seasonal aberration, they have called for more vigilance to keep the price rise in check.
