India Q4 GDP Growth Data Highlights: Indian economy grows at 7.8% in Q4; 8.2% in FY24, trailer of things to come, says PM Modi - The Times of India (2024)

Data from high-frequency indicators for April, such as auto sales, housing loans, and fuel consumption, indicated robust urban consumer demand. However, there were apprehensions regarding weak rural demand, despite predictions of an above-normal monsoon this year.

On the global front, economic activity continues to show resilience, with China's economy growing at a rate of 5.3% year-on-year and the U.S. economy expanding at an annualized rate of 1.3% in the March quarter. There are signs of inflation easing, boosting expectations for a pickup in India's exports.

“India's GDP growth for the full year 2023-24 and the January-March 2024 quarter exceeded both our expectations and the consensus forecast. This robust performance was driven by continued strong investment and subdued private consumption growth, alongside a significant contribution from discrepancies—the unexplained component of GDP. These discrepancies also explain the notable divergence between GDP and GVA growth.

Despite the high base set by unexpectedly strong growth in FY24, we anticipate India will achieve close to 7% growth in FY25, thanks to sustained economic momentum. This year, we expect a meaningful pickup in private consumption and a possible modest deceleration in investment growth. With robust growth and declining inflation, the Indian economy is in an enviable position, poised to remain the fastest-growing major economy in the world.

While these strong growth figures may present a challenge for the Reserve Bank of India (RBI) in its monetary policy decisions, slower inflation and ongoing fiscal consolidation should pave the way for modest rate reductions in the first half of 2025. This emerging scenario bodes well for the Indian equity market. Despite a sharp rally over the past 12 months, we expect equity returns to remain healthy in the next year,” says Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers.

India's fiscal deficit for the financial year that concluded on March 31 was lower than the government's full-year target of 5.8% of the gross domestic product, according to data released by the government on Friday. This was achieved through a minor reduction in expenditure. The fiscal deficit amounted to 16.54 trillion rupees ($198.34 billion), which is equivalent to 95.3% of the estimate. This was accomplished while the government maintained its record-breaking infrastructure spending to stimulate the economy.

Data released on Friday showed that the Indian economy experienced a growth rate of 8.2% in 2023/24. It is important to note that India's fiscal year commences on April 1 and concludes on March 31. The data also revealed that net tax receipts for 2023/24 surpassed projections, reaching 23.27 trillion rupees, which is 100.1% of the year's target. Total expenditure amounted to 44.43 trillion rupees, which is equivalent to 99% of the targeted spending for that year. The government's capital spending on infrastructure projects reached 9.49 trillion rupees.

In the October-December quarter, the headline growth figure was lifted by a significant decrease in subsidies, while gross value added (GVA), considered a more consistent measure of growth by economists, increased by 6.5%. In the March quarter, GVA expanded by 6.3%. India's economic growth for the full fiscal year 2023/24 was revised upwards to 8.2%, surpassing that of other major economies worldwide, from the government's previous estimate of 7.6%.

These growth projections will likely bolster Prime Minister Narendra Modi's position as he is widely expected to secure a third term in the national election, with results set to be announced on June 4.

Moody's Ratings projected India's growth at 6.8 percent for the current year, followed by 6.5 percent in 2025, driven by robust economic expansion and post-election policy continuity. India's real GDP increased by 7.7 percent in 2023, up from 6.5 percent in 2022, fueled by substantial government capital spending and vibrant manufacturing activity.

High-frequency indicators, such as robust goods and services tax collections, increasing auto sales, consumer optimism, and expanding manufacturing and services PMIs, indicated sustained economic momentum in the March to June quarter of this year.

Moody's updated Global Macro Outlook 2024-25 forecasts comfortable annual real GDP growth of 6-7 percent for the Indian economy, with an estimated growth rate of around 6.8 percent. They anticipate that strong, broad-based growth will persist with continuity in post-election policies.

In the fourth quarter of 2023-24, Real GDP, or GDP at Constant Prices, is projected at ₹47.24 lakh crore, compared to ₹43.84 lakh crore in the fourth quarter of 2022-23, reflecting a growth rate of 7.8%. Nominal GDP, or GDP at Current Prices, in the fourth quarter of 2023-24 is estimated at ₹78.28 lakh crore, compared to ₹71.23 lakh crore in the fourth quarter of 2022-23, indicating a growth rate of 9.9%.

Real Gross Value Added (GVA) in the fourth quarter of 2023-24 is estimated at ₹42.23 lakh crore, compared to ₹39.74 lakh crore in the fourth quarter of 2022-23, with a growth rate of 6.3%. Nominal GVA in the fourth quarter of 2023-24 is estimated at ₹70.97 lakh crore, compared to ₹65.74 lakh crore in the fourth quarter of 2022-23, showing a growth rate of 8.0%.

In the fiscal year 2023-24, Real GDP, or GDP at Constant Prices, is projected to reach ₹173.82 lakh crore, compared to the First Revised Estimates (FRE) for 2022-23 at ₹160.71 lakh crore. The growth rate for Real GDP in 2023-24 is estimated at 8.2%, up from 7.0% in 2022-23. Nominal GDP, or GDP at Current Prices, is expected to reach ₹295.36 lakh crore in 2023-24, compared to ₹269.50 lakh crore in 2022-23, indicating a growth rate of 9.6%.

Real Gross Value Added (GVA) is forecasted to be ₹158.74 lakh crore in 2023-24, up from the FRE for 2022-23 at ₹148.05 lakh crore, with a growth rate of 7.2% compared to 6.7% in 2022-23. Nominal GVA is expected to reach ₹267.62 lakh crore during FY 2023-24, compared to ₹246.59 lakh crore in 2022-23, reflecting a growth rate of 8.5%.

S&P Global Ratings has recently upheld India's sovereign rating while elevating its outlook from 'stable' to 'positive'. This shift is credited to the nation's robust economic expansion, bolstering its credit metrics, according to a report issued on Wednesday. However, the credit rating remains at 'BBB-'.

"We anticipate solid economic fundamentals to sustain growth momentum in the next two to three years," stated S&P. The agency foresees ongoing economic reforms and fiscal policies, regardless of the general election outcome. S&P's optimistic view on India is grounded in its strong economic growth, substantial improvements in government spending quality, and the government's dedication to fiscal consolidation. "We believe these factors are aligning to bolster credit metrics," the report affirmed.

India's foreign exchange reserves ended a three-week rising streak, standing at $646.67 billion as of May 24, down from a record high, according to central bank data released on Friday. The reserves fell by $2 billion that week, after increasing by a total of $10.8 billion in the preceding three weeks. The Reserve Bank of India (RBI) intervenes in the foreign exchange market to manage excessive rupee volatility.

In its annual report on Thursday, the RBI stated it would "enhance the intervention toolkit" to mitigate undue rupee volatility against the dollar in fiscal 2025, without specifying the new tools to be employed. Changes in foreign currency assets result from the RBI's market interventions and the appreciation or depreciation of foreign assets held in the reserves. Foreign exchange reserves also include India's reserve tranche position in the International Monetary Fund.

The combined Index of Eight Core Industries (ICI) increased by 6.2 percent (provisional) in April 2024 compared to April 2023. Positive growth was recorded in the production of Electricity, Natural Gas, Coal, Steel, Refinery Products, Crude Oil, and Cement in April 2024.

The ICI measures the combined and individual performance of production in eight core industries: Cement, Coal, Crude Oil, Electricity, Fertilizers, Natural Gas, Refinery Products, and Steel. These industries constitute 40.27 percent of the weight of items included in the Index of Industrial Production (IIP).

The final growth rate of the Index of Eight Core Industries for January 2024 has been revised to 4.1 percent. The cumulative growth rate of the ICI during 2023-24 reported a 7.6 percent increase (provisional) compared to the corresponding period of the previous year.

India's GDP surged by 8.4 percent in the October-December quarter of the 2023-24 financial year, maintaining its position as the fastest-growing major economy. The economy grew by 7.2 percent in 2022-23 and 8.7 percent in 2021-22. Currently, India's GDP ranks 5th globally, behind the US, China, Germany, and Japan, having overtaken the UK in 2022.

A decade ago, India held the 11th spot in global GDP rankings.

* Households have been borrowing at a faster pace since the pandemic, leading to a decline in 'net' household financial savings (gross financial savings adjusted for liabilities), as shown by government data up to fiscal 2023.
* This rising tendency for debt among households is driven by several factors: a retail credit push by banks due to sluggish corporate credit demand, increased borrowing appetite among the youth, and improved access to lenders thanks to technological advancements.
* Among financial instruments, households have shifted from deposits to equities, mutual funds, and small savings.
* Interestingly, proxy data indicates a rebound in the overall savings rate in fiscal 2024, with contributions from households.

The above insights are from CRISIL Market Intelligence and Analytics

The Reserve Bank of India (RBI) will enhance ongoing efforts to internationalize the rupee by implementing regulatory changes for non-residents and taking steps to increase the appeal of GIFT City compared to other international financial centers. “Efforts are underway toward the internationalisation of the Indian Rupee (INR) through the settlement of bilateral trade in local currency,” RBI officials noted in the central bank’s annual report for 2023-24.

“To promote the internationalisation of INR and support local currency settlement with partner countries, it is necessary to liberalise the regulations relating to INR accounts for non-residents,” they added. Accordingly, the Foreign Exchange Management (Deposit) Regulations concerning rupee accounts for non-residents are being reviewed in consultation with the government.

SBI is of the view that growth in the rural economy is accelerating.

"The rural economy is gaining momentum, with 75% of indicators showing acceleration in March 2024, up from 56% in February and 60% in January," an SBI research report highlighted. "Diesel consumption and two-wheeler sales are particularly indicative of this uptick."

The research unit of the public sector bank also noted that growth is expected to be higher next year, predicting the economy to achieve 7.5-8% growth.

Most economists in a Reuters poll attributed the likely slowdown in growth to a moderation in both the manufacturing and services sectors, along with a muted contribution from agriculture.

"We expect some sanity to return," said Kunal Kundu, India economist at Societe Generale. "Among the components, we do not expect any major improvement."
Over two-thirds of economists who responded to an additional question believed that the possibility of GDP growth significantly surpassing their forecast was low. The rest considered it high.

"Core inflation continuing to drop and recording the lowest growth since the onset of the pandemic is symptomatic of weak domestic demand," Kundu said. He also noted that weaker growth in private consumption, which accounts for 60% of GDP, was likely to be evident in the upcoming quarters.

Despite a decline in exports due to lower global demand, India’s external sector strengthened with a reduced current account deficit (CAD) and record-high foreign exchange reserves. The CAD decreased to 1.2% of GDP during April-December 2023 from 2.6% the previous year. Foreign exchange reserves climbed to $648.7 billion as of May 17, covering 11.4 months of imports, thereby enhancing buffers against external sector risks and adverse spillovers.

The RBI noted that the government’s focus on capital expenditure (capex) alongside fiscal consolidation, coupled with consumer and business optimism, bodes well for investment and consumption demand. "Investment was the major driver of domestic demand, buoyed by government spending on infrastructure," the report stated. Gross fixed capital formation increased to 10.2% in FY24 from 6.6% the previous year.

The RBI highlighted that investments under PLI schemes are expected to gain traction, creating new jobs, improving labor incomes, and boosting domestic demand. However, the economy will need to withstand increased global uncertainty and expected weaker global growth.

"Geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements, and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook," the RBI warned.

India Q4 FY24 GDP growth:: The Indian economy is on solid ground with enhanced external sector sustainability and strong corporate balance sheets. The Reserve Bank of India (RBI) noted in its annual report on Thursday that these factors, coupled with the emphasis on production-linked incentive (PLI) schemes, would boost job creation.

The RBI also stated that India is well-positioned to accelerate its growth trajectory over the next decade. "The outlook for the Indian economy remains bright, underpinned by sustained strengthening of macroeconomic fundamentals, robust financial and corporate sectors, and a resilient external sector," the central bank remarked.

The RBI projected India's real GDP growth at 7% for this fiscal year. Growth is expected to be bolstered by better prospects for the agriculture sector and rural activities, following the waning of the El Nino climate pattern and a forecast of an above-normal southwest monsoon.

The economy grew by 7.6% in 2023-24, up from 7% in 2022-23, despite facing challenges from prolonged geopolitical tensions and volatile global financial markets.

India Q4 GDP Growth Data: India’s Jan-March'24 national accounts data will be released on 31 May after market hours. We are forecasting Jan-March'24 real GDP to have grown 7.3%yoy during the quarter, which is higher than what we had previously anticipated. DB's India Macroeconomic Momentum Indicator (IMMI), which is a composite index of 5 high-frequency growth indicators – industrial production, exports, non-oil-non-gold imports, bank credit and consumer goods – tracks quarterly GDP growth quite well in advance and is indicating 7.0%+ growth during Jan-March'24. Our DB Composite Leading Indicator (CLI) – which comprises nearly 65 high-frequency indicators – is also pointing towards 7.0%+ real GDP growth in Jan-March'24. We are forecasting real GVA growth at 6.5%yoy for Jan-March'24, 90bps lower than our GDP estimate, says Kaushik Das, chief economist, India & South Asia, Deutsche Bank.

Nominal vs. real GDP growth trend - divergence due to deflator issue

The Indian economy has exhibited remarkable resilience despite higher-rates-for-longer, Russia-Ukraine war and Covid prior to that, though a strong pickup in real GDP growth during FY24 can be also attributed materially to a very low GDP deflator. Nominal GDP growth likely slowed down to 9.5%yoy in FY24, from 14.5%yoy in FY23 and 18.9%yoy in FY22. But, in real terms, GDP growth is likely to have accelerated to 8.0%yoy in FY24 vs. 7.0%yoy in FY23, thanks to a collapse in GDP deflator to 1.5% in FY24 vs. 7.9%yoy in FY23 and 9.4% in FY22.

GDP deflator is calculated incorporating both WPI and CPI inflation, with the former being accorded a higher weight of 65-70%. Ideally, WPI inflation should not be given such a high weight, given that services sector contribute the maximum to GDP (64-65%) at this juncture, while manufacturing sector's contribution to GDP is much smaller. But, due to legacy issues, the same method is continuing to calculate the GDP deflator.

As WPI inflation was negative in FY24 (-0.7% average) vs. +9.6%yoy in FY23 and +13.0%yoy in FY22, the GDP deflator is likely to be lower than 2%, even though CPI inflation averaged 5.4% in FY24. An appreciably lower GDP deflator has artificially pushed up the real GDP growth outturn for FY24, in our view. If real GDP was calculated giving a higher weight to CPI inflation, as it should (given that services sector contribute 64-65% to India's GDP and CPI inflation captures services sector inflation trend more comprehensively compared to WPI inflation), the real GDP outturn would have been significantly lower.