India Bucks Global Slowdown, Records Remarkable 8.4% GDP Growth in Q3

India’s Q3 GDP growth

The Indian economy continues to exhibit strong growth momentum, overcoming global headwinds and defying predictions of a slowdown. India’s GDP recorded a robust expansion of 8.4% during the October-December 2022 period, showcasing sustained vigor after clocking over 8% growth in the preceding two quarters.

Gdp Q3

According to the official data released by the Ministry of Statistics and Programme Implementation on Thursday, India’s economy has shown remarkable resilience amidst an increasingly challenging global environment. The better-than-expected third quarter growth reinforces India’s position as the world’s fastest growing major economy.

The Q3 growth reinforces the economy’s upward trajectory, outperforming most major economies that are grappling with the prospects of recession. In contrast to the economic turmoil in developed nations, India’s growth outlook remains optimistic.

The full-year FY24 GDP growth estimates have also been revised upwards to 7.6% from the earlier projection of 7.3%. The higher growth reflects buoyant private-sector investment and a pick-up in services spending as demand returns to pre-pandemic levels.

The third quarter numbers have pleasantly surprised many economists and market watchers who had projected a lower growth rate between 6-6.5% for the quarter. The 7.6% GDP estimate for the full fiscal year is also significantly higher than the RBI’s projection of 7% made in February.

Soumya Kanti Ghosh’ opinion

According to Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India, the FY24 GDP growth could be nearer to 8% based on the exceptional Q3 show. However, economists pointed out that a sharp wedge between GDP and GVA growth reflects higher tax revenue collection by the government.

The Q3 GVA growth was lower at 6.5% compared to 7.7% in the previous quarter. GVA or Gross Value Added is the value of goods and services produced in the economy, excluding net taxes. The higher GDP growth despite the slower GVA expansion indicates the government’s improved capacity to collect taxes on the back of formalization of the economy and better compliance.

The Budget’s Focus on Infrastructure and Capex to Unleash Growth

Economists believe the GDP growth in Q4 will moderate but the Union Budget’s focus on infrastructure spending and public capital expenditure will boost growth in the next fiscal. The budget has earmarked massive capital spending of Rs. 10 lakh crore, a 33% increase over last year, which will crowd-in private investment.

The sharp rise in capex allocation comes at a time when the private corporate sector has also initiated a long-awaited capital expenditure cycle. The twin impact of public and private investment is expected to unleash animal spirits and set the stage for a mini investment cycle.

According to rating agency ICRA, the 33% rise in capex will add 1.1 percentage points to demand growth in FY24. Economists expect the fiscal multiplier associated with capex spending to amplify growth.

The emphasis on investment-led growth focused on roads, railways, 5G networks, green energy transition, agriculture, and MSMEs will boost productive capacity and structural reforms.

Services Sector Bounces Back

A key highlight of the Q3 growth figures has been the rebound in services activity which contributes over 50% to GDP. Contact-intensive trade, hotels, transport and communication services, that were hit hard by the pandemic, have staged a smart recovery.

Government consumption also provided an impetus to growth on the back of higher expenditure by the central government. However, private consumption slowed down possibly on account of higher interest rates and global spillovers.

On the production side, manufacturing and construction drove GVA expansion even as agriculture growth moderated. Overall, the resilience across high-frequency indicators showcases the strength of macroeconomic fundamentals.

Outlook for FY25

With growth momentum holding up despite turbulent global headwinds, India is expected to maintain its tag of the world’s fastest-growing economy in 2023-24 and 2024-25.

The exceptional Q3 GDP figure has prompted leading economists and multilateral agencies like IMF to upgrade India’s growth projection for next fiscal. Rating agency ICRA predicts GDP growth of 7.2% in FY25, sharply higher than the RBI’s projection of 6.4%.

According to SBI’s Soumya Ghosh, the implied Q4 GDP growth of 5.9% is an understatement and FY25 growth could surpass 7% boosted by the private capex cycle.

As monetary tightening reaches its terminal phase and inflation starts easing, experts believe a shallow growth slowdown in India looks imminent. Backed by the potent mix of public spending, private investment and economic reforms, India is capable of sustaining high growth amidst global turmoil.

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