GDP Growth At 8.2 %: Booster Shot To The Economy On The Back Of Industrial Recovery

The January-March 2024 quarter (Q4) grew at a slower pace of 7.8 per cent compared to 8 per cent plus growth in the previous three quarters of the year. This was still far higher than a Reuters poll of 54 economists which had pegged Q4 growth at 6.7 per cent. 

India’s economy ranked fifth globally, now stands worth Rs 173.82 lakh crore at constant prices, with a per capita of a tad over Rs 1.24 lakh. Exulted Finance Minister Nirmala Sitharaman said, "High-frequency indicators show that the Indian economy continues to remain resilient and buoyant despite global challenges.”

“This (GDP growth data) is of course way above market expectations. This is the first time since Covid, that the economy has risen more on the back of growth in agriculture and industry than on the service sector,” N R Bhanumurthy, vice chancellor of Dr B R Ambedkar School of Economics University, Bengaluru, told The Secretariat.

The economy grew by 8.6 per cent in October-December 2023, the most in seven quarters, helped by a surge in net indirect taxes and a strict check on subsidies. In the first quarter, it grew by 8.2 per cent and in the second quarter by 8.1 per cent 

The gross value added (GVA), which many economists consider a more reliable indicator of economic activity, showed a year-on-year growth of 7.2 per cent in 2023-24. The GVA also showed a declining growth curve with the first quarter reporting a 8.3 per cent and falling in the next three quarters to 6.3 per cent in Q4.  

"While the growth in India’s GDP and GVA moderated to a four-quarter low of 7.8% and 6.3%, respectively, in Q4 FY2024 from the revised prints of 8.6% and 6.8% in Q3, it exceeded both our and market expectations,” Aditi Nayar, Chief Economist at rating firm ICRA, told The Secretariat.

One interesting feature of the GDP report has been the growing divergence between the GDP and GVA figures since 2019-2020, when both stood at 3.9 per cent. The difference between the GDP and GVA in simple terms is product or indirect taxes net of subsidies. In other words, if indirect taxes shoot up and subsidies are kept under check, it pushes up GDP compared to GVA.  

The primary sector GVA, which represents agriculture, grew by 2.1 per cent against 4.4 per cent the year before, while the secondary or industrial sector grew at 9.7 per cent against 2.1 per cent in 2022-23. 

Though service sector GVA growth was reasonably good at 7.6 per cent, it was way lower than the 10 per cent reported for 2022-23. Explained Bhanumurthy, “The farm sector grew at 2.1 per cent despite a drought, but the industrial revival is the real good news.”    

Auto sales in India had soared by 8 per cent to 2.8 million in 2023-24, according to data compiled by the Society of Indian Automobile Manufacturers. Power production for the year gone by also soared by 7.1 per cent. Helping the growth story was the increase in per capita income over the years (see graphic below).

The government also reported its fiscal deficit numbers for the year, which have narrowed down to 5.6 per cent against an earlier estimated 5.8 per cent, giving more breathing space to its finance ministry. The Secretariat dived deeper into the data to know what the reduction could mean for the next government

An unexpected dividend paid out by the country’s central banks earlier this week, worth Rs 2.11 lakh crore, is now expected to give it more space to cut deficit aggressively for the year 2024-25, helping improve its global credit rating.

However, despite the rosy outlook, economists feel keeping up the growth momentum at this pace may be difficult, given various factors including rising costs, tensions and wars in parts of the world affecting Indian exports. 

“With transient factors likely to dampen growth in the first half of 2024-25, we expect the GDP growth to decelerate from the 8.2 per cent recorded in 2023-2024," agreed Nayar.

Graphics by Sunil Pew & Prakriti Bakshi. Story inputs by Pawan Kumar.