India GDP Preview: Economists Expect Resilient Economy To Grow 6.6% In Q3, 7% In FY24

(Source: Freepik)

Indian economic growth is expected to remain on track in the third quarter of FY24, despite growing at a slower pace.

The gross domestic product is estimated to grow by 6.6% in the October–December period, according to economists polled by Bloomberg. That's lower than 7.6% in the previous quarter. Gross value added is expected to expand to 6.4%, compared to 7.4% in Q2.

Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in government expenditure and an uneven monsoon are expected to dampen the GDP growth to 6% in Q3 FY24 from 7.6% in Q2 FY24.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA

For the full year, GDP is estimated to grow by 7%, according to economists polled by Bloomberg, compared to 7.3% as per the first advance estimates. GDP grew by 7.2% in FY23.

Key Sectors

Agriculture growth is expected at 2.1% in Q3 FY24, according to Jahnavi Prabhakar, economist at Bank of Baroda. This will be a tad slower growth than was initially anticipated after the first advance estimates for kharif crops. However, for the next quarter, some recovery is expected given the robust rabi acreage.

The industrial sector will register some moderation with 8% growth in Q3 FY24, compared with a growth of 13.2% in Q2, according to estimates by the Bank of Baroda. Mining and manufacturing growth will register growth of 6% and 8.6% in Q3 FY24, respectively. This is attributable to a higher base effect. This deceleration is despite the softness in commodity prices along with improved corporate earnings. The construction sector is expected to grow at a strong pace on the back of improvements in steel and cement output. This is further supported by a steady demand push led by residential housing and a sustained thrust on government capex.

For services, a delayed festive surge and the World Cup event have brought about a broad-based improvement in Q3 at 6.7%, compared to 5.8% in Q2, according to estimates by the Bank of Baroda. This, in turn, is expected to boost the hospitality sector. Robust credit growth will push financial sector growth higher.

Private Consumption: Risks Continue

In the October-December quarter, private consumption is expected to be up 5.8% year-on-year, while total investments are forecast to grow by 10%, according to Kaushik Das, chief economist at Deutsche Bank. As per estimates by Das, net exports will likely subtract 0.4% from growth, while government consumption growth is likely to be around 7% annually.

Aggregate demand is largely driven by government capex and continues to pose risks, according to a research note by India Ratings and Research Pvt. Prevailing consumption demand is still skewed in favour of the goods and services consumed by households belonging to the upper 50% of the income bracket.

Another issue that will have implications for gross value added and corporate profitability in FY25 is the rise in the wholesale price index, which has returned to inflation since November 2023 after remaining in deflation from April to October. “A rise in input costs, if it is not adequately passed into output prices, will reduce value addition and corporate margin. Given that consumption is not broad-based, producers will find it difficult to pass on the higher input cost to output prices," said Sunil Kumar Sinha, principal economist at India Ratings.