India's GDP growth accelerates to 8.4% in Q3; FY24 growth pegged at 7.6%

India's gross domestic product (GDP) grew 8.4 percent in the December quarter, data released by the Ministry of Statistics and Programme Implementation on February 29 showed, blowing all expectations out of the water.

A survey of economists by Moneycontrol estimated Q3 GDP growth to slow down to a three-quarter low of 6.5 percent from 7.6 percent in the three months ended September 30, 2023. The estimate for growth in the second quarter has now been revised up to 8.1 percent, while that for the first quarter has been revised higher to 8.2 percent from 7.8 percent.

As a result, the statistics ministry now expects the full-year GDP growth to be even higher than its unexpectedly high first advance estimate of 7.3 percent. The second advance estimates now peg GDP growth at 7.6 percent for 2023-24 even as economists had expected it to be lowered to 6.9 percent.

At 8.4 percent, the latest quarterly GDP growth rate is the highest in six quarters. Last time India's economy grew at a faster rate was in the first quarter of 2022-23, when it grew by 13.1 percent, now revised down to 12.8 percent.

Commenting on the GDP data, Prime Minister Narendra Modi said in a post on X: "Robust 8.4% GDP growth in Q3 2023-24 shows the strength of Indian economy and its potential. Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat!."

"The Q3 data on India's growth threw up a divergent trend, with the GVA growth moderating broadly on expected lines to 6.5% and the GDP expanding by a much higher-than-anticipated 8.4%. This wide gap followed a surge in the growth of net indirect taxes to a six-quarter high of 32% in this quarter, which is unlikely to be sustainable. In our view, it may be more appropriate to look at the trend in the GVA growth to understand the underlying momentum of economic activity.

"Investments emerged as the fastest growing component of GDP in Q3 FY2024 and displayed a mild sequential dip, contrary to the sharp slowdown seen in government capex. Amid the sharp upside surprise in the headline GDP growth number, the contraction in the government's revenue expenditure and capital expenditure, as well as the slide in the core sector growth in January 2024, offer some sobering trends," said Aditi Nayar, chief economist, ICRA Ltd.

The sharply higher-than-expected quarterly growth rate for October-December - the highest forecast in the Moneycontrol survey of economists was 7.0 percent - more than cements India's status as the fastest growing large economy in the world.

Growth in the third quarter of the current financial year was propelled by double-digit growth in the manufacturing sector, with construction not too far behind, posting a growth rate of 9.5 percent.

"GDP growth surpassed expectations in Q3, coming above 8%. However, from the supply side, GVA growth was in line with expectations at 6.5%. This divergence is due to the strong tax growth in the quarter. Broadly, the internals signal that agriculture growth remains weak, while manufacturing and services continue to push up growth. The data revisions to full-year FY24 figures present a downside risk to our current FY25 forecast of 6.4%," said Sakshi Gupta, prinicpal economist, HDFC Bank.

Meanwhile, the agriculture sector's gross value added (GVA) contracted by 0.8 percent.

The overall GVA growth in October-December 2023 was 6.5 percent, down from 7.7 percent in July-September, while the full-year GVA growth has been pegged at 6.9 percent, up from 6.7 percent in 2022-23.

The upward revision in the second advance estimate of GDP growth to 7.6 percent from 7.3 percent was also aided by a cut in the GDP growth figure for 2022-23 to 7.0 percent from 7.2 percent, resulting in a favourable base effect.

Similarly, GDP growth in October-December 2023 also received a leg-up from the base effect, with the October-December 2022 GDP growth rate revised down to 4.3 percent from 4.5 percent.