India’s GDP Growth Exceeds Expectations in Third Quarter, CRISIL Report Predicts Moderation
India's gross domestic product (GDP) surpassed expectations in the third quarter, growing at 8.4 per cent compared to 8.1 per cent in the second quarter. However, a recent report by CRISIL suggests that after a strong performance in the past three fiscal years, GDP growth is likely to moderate in the upcoming fiscal year.
India's gross domestic product (GDP) surpassed expectations in the third quarter, growing at 8.4 per cent compared to 8.1 per cent in the second quarter. However, a recent report by CRISIL suggests that after a strong performance in the past three fiscal years, GDP growth is likely to moderate in the upcoming fiscal year.
Economic Outlook for India
According to the CRISIL report, the growth forecast for the past two fiscal years has been revised. The estimate for fiscal year 2023 has been lowered by 25 basis points to 7.0 per cent, while the estimate for fiscal year 2022 has been revised up by a significant 60 basis points to 9.7 per cent. The Statistics Ministry's second advance estimates indicate a GDP growth rate of 7.6 per cent for fiscal year 2024, surpassing the initial estimate of 7.3 per cent released before the Union Budget in January. It is worth noting that there will be another revision in May based on the availability of Q4 data, which will have a longer-lasting impact.
Factors Affecting Growth
The CRISIL report highlights that the transmission of past rate hikes by the Reserve Bank of India to broader lending rates is ongoing. Rising borrowing costs and regulatory measures to curb risky lending could potentially dampen domestic demand in the next fiscal year. However, factors such as a normal monsoon and easing inflation may help revive rural demand. The report also mentions that a reduction in the fiscal deficit could limit the fiscal impulse to growth, even though quality spending could provide some support to the investment cycle and rural incomes. Additionally, analysts at CRISIL anticipate a normalization of the net indirect tax impact on GDP in the current fiscal year.
Domestic Savings and Foreign Funding Trends
The government recently released data on saving, investment, and consumption trends in the Indian economy up to fiscal year 2023. Gross domestic savings decreased to 30.2 per cent of GDP in fiscal year 2023, down from 31.2 per cent in the previous year. Household savings also saw a decline, falling to 18.4 per cent of GDP in fiscal year 2023 from 20.1 per cent in the previous year. Private corporate savings remained stable at around 11.2 per cent of GDP. Notably, foreign funding increased in the last fiscal year, accounting for 6.1 per cent of gross capital formation, up from 3.7 per cent in the previous year.
Growth Trends in the Third Quarter
In the third quarter, India's GDP accelerated to 8.4 per cent, while Gross Value Added (GVA) growth moderated to 6.5 per cent from 7.7 per cent. The growth was primarily driven by strong performances in sectors such as construction, mining & quarrying, and manufacturing. Manufacturing, in particular, saw significant growth of 11.6 per cent year-on-year in the third quarter. Construction GVA also experienced healthy growth, supported by continued government capital expenditure in infrastructure. Services growth picked up to 7.0 per cent, with notable improvements in sectors such as Trade, Hotels, Transport, and Communication (THTC), as well as Financial, Real Estate, and Professional Services. However, agriculture and allied GVA contracted by 0.8 per cent, partly due to an unfavorable base and a decline in kharif output as per the government's estimates.
Consumption and Investment Trends
The data suggests that the better growth in the third quarter was primarily driven by investments, which saw a significant increase of 12.2 per cent, the highest in six quarters. Private consumption growth remained weaker at 3.5 per cent year-on-year, while government consumption contracted by 3.2 per cent. Moreover, the drag from net exports eased in the third quarter, with both export and import growth moderating compared to the previous period.
In conclusion, while India's GDP growth exceeded expectations in the third quarter, there are concerns about moderation in the upcoming fiscal year. Factors such as rising borrowing costs, regulatory measures, and a reduction in fiscal deficit could impact domestic demand. However, the revival of rural demand through a normal monsoon and easing inflation may provide some support. It will be crucial to monitor the upcoming growth revisions and their implications for the Indian economy.
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