India’s FY24 GDP: Q3 takes the lead

 Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

The NSO has recently (February 29) come up with the news that India has, for the third consecutive quarter, achieved a growth rate above 8 percent. The real GDP growth rate in the first quarter of this fiscal year was 8.3 percent on a year-over-year basis. The rate has been maintained, although there was a marginal fall during Q2, which came to 8.2 percent, and now in Q3, it has registered a growth rate of 8.4 percent, the highest among all three quarters. The report shows that in absolute terms, the real GDP of India for Q3 of FY24 is estimated at Rs 43.72 lakh crore as opposed to Rs 40.35 lakh crore as estimated for the same period last year, resulting in a growth of 8.4 percent of GDP. The NSO has also revised upward the estimated GDP for the years 2023–24 at constant prices from Rs 160.71 lakh crore, as arrived at during the first revised estimate, to Rs 172.90 lakh crore. With this revision, the estimated growth rate now stands at 7.6 percent, as compared to a growth rate of 7.0 percent for the year 2022–23.

The sector-wise performance data for Q3 of FY24 as presented by the NSO indicates a positive atmosphere on the production front. The overall performance is good, and there are scopes for further improvement in the service sector. The traditional sector, as it appears from the data, is not making any headway since the fall in its production during Q2, which is a matter of grave concern. During Q2, production was contracted to 1.2 percent, as against last year’s figure of 2.3 percent year over year. The performance further deteriorated in the third quarter with a negative growth of -0/8 percent as against last year’s growth of 5.2 percent for the same period. The sector is usually responsible for contributing 16 to 18 percent to the total GVA. The performance has been explained as the result of bad weather and the impact of El Nino. But this will not stop exerting negative pressure on the rural economy through its sectors like livestock, forestry, fishing, etc., which are the basic rural sectors. This sector generates the second-largest employment after the service sector. The government has recently released agricultural data pertaining to the second advance estimates on agriculture production, estimating the total food grain production for 2023–24 to be 6.1 percent lower than the last season.

Apart from this, the other sectors are performing well. Some of the sub-sectors are growing slowly or contracting, but none have shown negative growth. The mining and quarrying sector grew by 7.5 percent as against the last quarter’s growth of 11.1 percent of the same period last year. This time, the manufacturing sector steals the show. As against Rs 5.86 lakh crore of the Q3 FY23, this Q3 registered a total value addition of the sector amounting to Rs 6.54 lakh crore, leading to a growth of 11.6 percent year over year. It may be noted that the last quarter performance of the sector (14.4%) was better than the third quarter performance. The allied sector, namely, electricity, gas, water supply, etc., has also grown considerably all through the three quarters.

The service sector, which happens to be the highest contributor to the GVA, comprising between 52 and 55 percent, has performed substantially in this quarter as well. The trade, hotels, and transport sectors grew by 7.5 percent in Q3 as against the second quarter’s 4.5 percent. This sector contributes about 19 to 20 percent of the GVA and happens to be the second-largest contributor to the GVA. The construction sector showed a sluggish growth rate of 9.5 percent, equivalent to last year’s growth rate of 9.5% for the same period. In absolute terms, however, the gross value addition was to the tune of Rs 3.30 lakh crore last year, which increased to Rs 3.60 lakh crore in Q3 of the current year. On the other hand, the real estate sector has expanded 7.0 percent in comparison to last year’s performance for the same period of 7.7 percent. Undoubtedly, both the first quarter (Rs 10.17 lakh crore) and the second quarter (Rs 10.12 lakh crore) have made astounding performances. However, the third-quarter performance has declined substantially to Rs 8.20 lakh crore. The public administration and defence services have expanded to an extent of 7.5 percent. The performance in this sector has gradually slowed down since the first quarter. The first quarter performance was to the tune of 8.2 percent, which was then contracted to 7.7 percent, and now it is reduced to 7.2 percent. However, on a year-on-year basis, the sector had expanded considerably compared to last year’s performance of 3.5 percent.

The Q3 FY24 GVA at basic prices is therefore mainly shaped by the growth of the non-farm sectors, which comes to Rs 39.85 lakh crore as against the second quarter’s Rs 38.42 lakh crore, giving a rise of 3.7 percent. However, on a year-on-year basis, the expansion is 6.5 percent, as against last year’s 4.8 percent for the same period.

On the demand front, the growth in private final consumption expenditure, which contributes the highest proportion to the gross domestic product, has slowed down marginally, contributing 58.6 percent of the GDP as against the recorded 61.3 percent last year for the same period. Similarly, the performance of the government’s final consumption expenditure also appears to be falling short of what was expected of the sector. Compared to last year’s performance of 8.7 percent, this year’s sector is estimated to contribute 7.8 percent to the current year’s GDP. Even the Q2 result was much higher than this, contributing 9.2 percent to the GDP. The sluggish growth rate is responsible for two main reasons: 1) rising food prices due to inflation and 2) the distribution of subsidized foods to poverty-ridden people under various welfare schemes of the government. Both of these factors have been reducing the volume of consumption by changing the expenditure patterns of people.

In the case of gross fixed capital formation (GFCF), which happens to be the second-largest component of GDP, the contribution was to the tune of 32.4 percent in the third quarter. This is against last year’s contribution of 31.8 percent for the same period. But the Q2 contribution to the GDP was 34.3 percent, which is way above the Q3 contribution. The next in line is the external sector. In this sector, marginal advantages in terms of exports could be visible from the absolute data. But the proportion of exports compared to last year has declined marginally from 23.3 percent in the last year to 22.2 percent in the current year, while imports remained static at 24.0 percent on a year-over-year basis. The overall picture of the quarterly estimates shows that the rate of growth has been consistently good, at 8.2 percent in the first quarter, then 8.1 percent in the second, and finally 8.4 percent in the third quarter. With this ground scenario, it would not be difficult to achieve the expected rate of 7.6 percent growth for 2023–24. For this, the economy is to achieve at least a growth rate of 5.89 percent in the 4th quarter.