India’s latest GDP prints for Q4 FY24 delivered another round of positive surprises, after the higher-than-anticipated numbers for Q3 that had been released in February 2024. Although GDP and GVA growth moderated to a four-quarter low of 7.8 per cent and 6.3 per cent, respectively, in Q4 FY24 from the revised prints of 8.6 per cent and 6.8 per cent in Q3, the extent of the dip was rather limited as compared to our expectations. The growth in the former, was also boosted by the continuing sharp 22.2 per cent expansion in net indirect taxes in real terms in Q4 FY24. This resulted in the growth in GDP exceeding that in the GVA by a considerable 148 basis points (bps) in the quarter.

The deceleration in the GVA growth was largely driven by a broad-based easing across all the four sub-sectors of the industrial sector. This was unsurprising, given the moderation in volume growth across the mining, manufacturing and electricity segments, as reflected in the IIP growth prints for Q4 FY24 vis-à-vis Q3. Additionally, the narrowing deflation in industrial raw material inputs in Q4 FY24 vis-à-vis Q3, and an adverse base are also likely to have impacted value-added growth in the manufacturing segment.

Having said that, the growth in both manufacturing and construction remained quite robust, printing at above 8 per cent in the quarter. In particular, construction growth has sustained above 8 per cent for four consecutive quarters, after expanding by 9.4 per cent in FY23, which reflects the buoyancy in the real estate market, as seen in home sales volumes and new product launches, as well as the infrastructure segment, which has been aided by the sharp increase in government capex over the last couple of years. Growth in the services segment witnessed an expectedly mild slowdown to 6.7 per cent in Q4 FY24 from 7.1 per cent in Q3 FY24, amid a moderation in the trade, hotels, transport and communication services segment despite a favourable base.

The agri-GVA witnessed an expansion of 0.6 per cent in Q4 FY24, in contrast with our expectations of a marginal contraction in the quarter. Additionally, the upward revision in the output of several crops in the second advance estimates vis-à-vis the first advance estimates for the same, aided in the upward revision in the Q3 growth print for the sector. Nevertheless, agri growth has remained quite weak in H2 FY24, reflecting the impact of the uneven monsoons in 2023.

Private consumption

The weak monsoons also weighed on the growth in private consumption, which remained lacklustre at 4 per cent in Q4 FY24, amid subdued rural demand. Besides, the growth in gross fixed capital formation (GFCF) narrowed quite sharply to 6.5 per cent in Q4 from 9.7 per cent in Q3 FY24. This led to a decline in the GFCF-to-GDP ratio (in real terms) to 33.2 per cent in the quarter from 33.6 per cent in the year-ago quarter. This was the first instance of YoY dip in the ratio in four quarters. Interestingly, net exports (in real terms) turned positive in Q4 FY24, after exerting a drag in each of the last three quarters, thereby partly offsetting the subdued growth in private consumption and the slowdown in GFCF growth in that quarter.

Coming to the annual headline numbers, India’s GDP growth accelerated to a robust 8.2 per cent in FY24 from 7 per cent in FY23, led by a sharp uptick in GFCF growth as well as a narrower drag on account of net exports, even as private and government consumption slowed down in the fiscal. Consequently, India’s investment rate, measured as gross capital formation as a proportion of GDP, inched up to a nine-year high of 33.3 per cent in FY24 from 33 per cent in FY23. Given this, and our expectations of a narrowing in the current account deficit to 0.8 per cent of GDP in FY24 from 2 per cent in FY23, the country’s savings rate is also likely to have increased in the previous fiscal.

The writer is Chief Economist, Head-Research & Outreach, ICRA

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