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India’s Economic Growth Reaches 8.2% in FY24, with Q4 Expansion at 7.8%

June 1, 2024

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India’s economic growth accelerated to 8.2% in the fiscal year 2024, propelled by a stronger-than-anticipated 7.8% increase in the March quarter, primarily driven by solid manufacturing performance. The provisional figures released on Friday highlight India’s position as the fastest-growing major economy globally.

Marking the most substantial annual expansion since FY17, aside from the 9.7% post-Covid surge in GDP during FY22 following a 5.8% downturn in FY21, the initial forecast in February had anticipated a growth of 7.6% for FY24. Despite concerns over lukewarm private consumption, economists and the government project that this robust growth trend will persist. The release of this data coincides with the final phase of polling on Saturday.

Finance Minister Nirmala Sitharaman, in a statement, emphasized the Indian economy’s continued resilience and vitality amidst worldwide challenges, as evidenced by numerous high-frequency indicators.

In FY24, the investment-to-nominal GDP ratio climbed to a ten-year peak of 30.8%.

The fourth quarter’s sequential growth was the slowest of the year, decreasing from 8.6% in the December quarter, yet it significantly exceeded the 6.8% median prediction in an ET survey.

The Gross Value Added (GVA) growth for FY24 stood at 7.2%, one percentage point lower than the GDP, indicating a substantial contribution from net taxes to the overall acceleration.

Crisil’s Chief Economist DK Joshi remarked on the unexpected positive trajectory of India’s growth, attributing it to domestic strengths and a focused policy approach that has set the economy on a stable growth path, thereby reducing the permanent GDP loss caused by the pandemic.

Compared to the previous year’s 14.2%, nominal growth rose by 9.6%, with deflation in the wholesale price index keeping the GDP deflator subdued throughout the year.

This impressive GDP figure follows S&P Global Ratings’ first outlook upgrade for India in almost a decade, hinting at a potential rating enhancement within the next 24 months if the economic momentum is maintained and fiscal consolidation continues.

The robust growth diminishes the likelihood of an imminent reduction in interest rates by the central bank.

Barclays’ Shreya Sodhani noted that the current growth rate exceeds the RBI’s expectations, suggesting that the central bank may not feel pressured to lower rates while the monetary policy committee awaits inflation stabilization.

Manufacturing saw an 8.9% growth in the fourth quarter, with the entire FY24 witnessing a 9.9% increase, leading the sectors alongside construction, which also recorded a 9.9% growth for the year.

Finance Minister Sitharaman acknowledged the manufacturing sector’s notable 9.9% growth in 2023-24, reflecting the success of the government’s initiatives for the industry.

KV Subramanian, Executive Director at the International Monetary Fund, highlighted the nearly 10% growth in manufacturing this year, suggesting that India can indeed enhance its manufacturing sector by addressing policy shortcomings.

Agriculture experienced a modest 0.6% growth in the last quarter, with an annual increase of 1.4%.

ICRA’s Chief Economist Aditi Nayar pointed out the minimal 0.6% year-over-year rise in the agricultural sector during Q4 FY24, attributed to the adverse effects of the 2023 monsoon.

Private consumption grew by 4% in the fourth quarter, consistent with the previous quarter’s expansion, while exports saw an 8.1% increase following a 3.4% growth in Q3.

CareEdge’s Chief Economist Rajani Sinha expressed concerns over the persistent weakness in private consumption growth.

Economists anticipate that the momentum for higher growth is likely to carry on into the next year. The IMF forecasts a 6.8% growth for FY25, whereas the Reserve Bank of India projects a more optimistic 7% for the current fiscal year.

EY India’s Chief Policy Advisor DK Srivastava estimates a real GDP growth of 7-7.5% for FY25, expecting sustained high capital expenditure growth in the upcoming full-year FY25 budget. He notes that the government has reasonable fiscal leeway despite recent elections.

Economists suggest that the above-normal monsoon predicted by the India Meteorological Department (IMD) could further stimulate growth through increased agricultural output. While a rebound in private investment could support growth, consumption continues to be a concern.

CareEdge’s Sinha emphasized the importance of moderating food inflation for a widespread improvement in consumption trends.

Former Chief Statistician Pronab Sen identified subdued consumption as a potential obstacle to maintaining growth momentum, noting the unsustainable long-term gap between consumption and gross value added of 3.2%.

Madan Sabnavis predicts a growth of 7.3-7.4% for FY25, considering the high base effect that may temper growth in the current year. <hr>

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