India’s Real GDP or GDP at Constant (2011-12) Prices in Q2 2023-24 is estimated to attain a level of ₹41.74 lakh crore, as against ₹38.78 lakh crore in Q2 2022-23, showing a growth of 7.6 percent as compared to 6.2 percent in Q2 2022-23. The unexpected pick up in the GDP growth is pulled up mostly by the mining, manufacturing, and construction activities. Despite favourable base effects, it is also worth highlighting that the capex by the government has been picking up which is getting reflected after a lag impact. This has been reflected in improved Gross Fixed Capital Formation (GFCF).
For instance, let’s explore the sector-wise indicators for measuring GDP. It may be noted that despite the meagre growth of consumer goods by 2 per cent in Sept’23, the growth of the eight core industries remains robust. The combined Index of Eight Core Industries (ICI) increased by 8.1 per cent (provisional) in September 2023 as compared to the Index of September 2022. The production of Coal, Steel, Electricity, Natural Gas, Refinery Products, Cement and Fertilizers recorded positive growth in September 2023 over the corresponding month of last Year. However, it may be noted that the Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP). While the growth of the eight core industries remains resilient, the consumer goods output increased by only two per cent in Sept’23 which brings down the overall growth of the Index of Industrial Production (IIP) to 5.8 per cent in Sept’23. There was some slowdown in both consumer durables and non-durables during Sept’23.
The second and sixth indicators, namely financial performance of listed companies in the Private Corporate Sector and production/consumption of cement and steel also remains robust. For cement, the double-digit YoY revenue growth was led largely by volume growth as demand from infrastructure, real estate and housing were robust. Decline in input cost, freight cost and gain from operating leverage lifted profitability.
The tenth and eleventh indicators, namely, sales of commercial vehicles, and bank deposits and credit also remains healthy. The marked increase in automobile qualitative score can be attributed due to a new milestone with vehicle sales climbing to 37.93 lakh, a 19% increase from last year’s 31.95 lakh. During Festival seasons, according to FADA (Nov’23), record-breaking sales were reported in several categories, with rural areas particularly contributing to the surge in two-wheeler purchases. Despite initial underperformance during Navratri, particularly in the passenger vehicle sector, the situation improved by Deepawali, ending with a 10% growth rate. Moreover, according to the NCAER November 2023 Monthly Economic Review (MER) and Vahan Dashboard of the Government of India, the overall registered EV sales reached 1.4 lakh units in October 2023 registering a sequential growth of 9.0 percent sales among different categories for EVs.
However, despite the robust GDP number for Q2FY24, the growth seems to be a bit unbalanced as rural sector growth remains subdued, which is also reflected in the struggle of many FMCG players in finding the desired pace of product’s growth. Uneven monsoons and moderated kharif production have also weighed adversely for the agricultural sector. Rabi sowing and reservoir levels would be crucial for the growth of the agricultural sector. Private final consumption expenditure (PFCE) and services sector growth also remain moderated, which has been faced the heat of the continued policy rate hike by the central bank to curb the elevated inflation. It may be noted that the annual financial liabilities of households have increased sharply by 5.8% of GDP in FY23, compared to 3.8% in FY22, which indicates that private household consumption is majorly being undertaken through borrowed funds.
The surge in real GDP growth in India in Q2FY24 is largely driven by construction and manufacturing activities that shows the push by the Indian government on infrastructure is showing certain results. Despite certain sectors lagging, it is encouraging to note that India has outperformed many other countries regarding the growth. For instance, a comparison with other countries have shown that in the end of the September’23 quarter, the real GDP growth of US remains at only 2.8 per cent, which is the highest among the developed countries. China and Japan have seen 4.9 per cent and 1.2 per cent growth respectively. According to the IMF’s Oct’23 growth projections, India will be the fastest growing economy, with a projected growth of 6.3% in 2023 and 2024.
Vipin Malik is a Mentor & Chairperson of Infomerics Ratings and Sankhanath Bandyopadhyay is an Economist, Infomerics Ratings.