- India’s GDP growth raced to a 4-quarter high in Q1 FY24, in line with market expectations, coming in at 7.8%YoY compared to 6.1% in Q4 FY23
- On annualised basis, growth was broad-based with 5 of the 8 sectors recording an acceleration vis-à-vis Q4 FY23. Improvement in growth was predominantly led by sectors of – 1) Finance, Real Estate & Professional Services, 2) Public Administration, Defence & Other Services, 3) and Mining & Quarrying sectors
- Growth in government consumption and exports both slipped into contraction in Q1 FY24 on a YoY basis. Expectedly, subdued growth in Government’s revenue expenditure sans interest and subsidy payments and near stagnant global trade activity explain this trend.
- Q1 FY24 is also likely to be the peak of quarterly GDP trajectory for FY24.
- Further ahead into the fiscal year, growth outcomes are expected to moderate amidst kicking-in of an unfavourable statistical base along with pace of incremental economic activity moderating on both exports and domestic consumption fronts. The weaker performance of the current monsoon could add to risks and impact both agricultural output and rural demand.
- As such, we maintain our GDP growth forecast of 6.0% in FY24.
India’s real GDP growth raced
to a 4-quarter high in Q1 FY24, in line with market expectations, coming in at
7.8%YoY compared to 6.1% in Q4 FY23 (Refinitiv: 7.7%). Growth in GVA matched
that of GDP in the quarter, clocking an improvement from 6.5% in previous
quarter. Interestingly, nominal GDP had a muted growth of 8.02% which is the
lowest print in the last ten quarters due to benign inflation readings both in
CPI and in WPI where, in particular, a deflation happened after twelve
- Sequentially, GDP contracted by 7.4%QoQ, much
higher than the pre-pandemic average (over a 5-year period) of -3.2% observed
in Q1. This underscores the support from a favourable base to headline GDP
growth, as Q1 production over the last three years had been marred by Covid
effects albeit with reducing intensity.
- On annualised basis, growth was broad-based
with 5 of the 8 sectors recording an acceleration vis-à-vis Q4 FY23.
Improvement in growth was predominantly led by sectors of – 1) Finance, Real
Estate & Professional Services, 2) Public Administration, Defence &
Other Services, 3) and Mining & Quarrying sectors, along with marginal
uptick seen in Manufacturing and Trade, Transport, Communication &
- While growth in agriculture and construction
moderated in comparison to previous quarter, the former was in line with LPA
(at 3.5% in Q1 FY24) and latter still clocked a healthy expansion of 7.9%. Only
electricity sector displayed exceptional weakness, with growth slipping to 2.9%
- the lowest since Jun-21 and this we believe is largely on account of a warmer
summer and higher residential demand in the previous year.
- On the demand side of GDP, growth was
single-handedly driven by private consumption expanding by 6.0% in Q1FY24
compared to 2.8% in Q4 FY23. While investment growth moderated marginally to
8.0% from 8.9% in previous quarter, it continued to remain healthy and provided
support to the GDP figure. In fact, on trend basis, 4 quarter moving average
of investment growth has been exceptionally stable at 8.6%, predominantly
supported by Government capex..
- Growth in government consumption and exports
both slipped into contraction in Q1 FY24. Expectedly, subdued growth in
Government’s revex (i.e., revenue expenditure sans interest and subsidy
payments) and near stagnant global trade activity (see chart) explain such a
- Ratio of external trade deficit to GDP widened
substantially to 6.4% in Q1 FY24 from a mild 0.1% in Q4 FY23, on account of
higher merchandise trade deficit during the quarter.
- Nominal GDP growth at 8.0% in Q1 FY24, reflects
marked deceleration in input costs in the quarter, especially WPI inflation
which slipped into a contraction.
The healthy pace of GDP growth
continuing well into Q1 FY24 was in line with performance of several high
frequency indicators, such as GST collections, auto sales, PMI data among
others. Services as a sector continues to outperform, with healthy traction in
Trade, Transport, Communication & Hospitality Services driven by recovery
in contact-intensive sectors. Overall, strength in domestic consumption
outweighed the drag from global demand in Q1 FY24.
Q1 FY24 is also likely to be
the peak of quarterly GDP trajectory for FY24. Further ahead into the fiscal
year, growth outcomes are expected to moderate amidst kicking-in of an
unfavourable statistical base along with pace of incremental economic activity
moderating on both exports and domestic consumption fronts. While we continue
to expect the underlying strength in investment theme to prevail in FY24,
slowdown in global growth, waning of domestic pent-up demand and lagged impact
of monetary tightening are expected to collectively weigh more materially going
forward. In addition, adverse impact of El Nino on monsoon performance if
lingers into Sep-23, may impinge not only on Kharif output but also hamper Rabi
As such, we maintain our call
of moderation in FY24 GDP growth to 6.0% from 7.2% in FY23.
Concludes Suman Chowdhury,
Chief Economist and Head – Research, Acuité Ratings & Research Ltd “As
expected, GDP growth in the first quarter of the current fiscal was robust
buoyed by the strong momentum in the services sector and partly by the favourable
base. Contact intensive services and construction have stood out among the key
growth segments. What is encouraging is the healthy annualized growth in
private consumption by 6.0% YoY compared to a weak 2.8% and 2.2% in the
previous two quarters which indicates a revival in rural demand. The rise in
gross fixed capital formation continues to be steady at 8.0% YoY. Expectedly,
the decline in exports has been a constraining factor which is likely to impact
growth in the subsequent quarters as well.
Going ahead, we expect growth
to moderate in the subsequent quarters with the full year growth pegged at
6.0%. The downside risks to agriculture in the current year have increased
which may slow down the growth in rural demand. A sustained growth in private sector
investments may partly offset such risks but such trends need to be watched
Table 1: India’s GVA and GDP: Sectoral break-up
Chart 1: Slowdown
in global trade is beginning to impinge on India’s growth