India’s fiscal year GDP growth

The Indian GDP grew by 8.2% in the financial year ending March of 2024, well above the initial print of 7.3%, and revised higher from the second estimate of 7.6%, to consolidate India as the fastest-growing major economy in the world. Still, the GDP diverged considerably from the 7.2% growth in gross value added in the financial year, indicating that the net indirect tax category of the GDP may have inflated the gauge.

The market momentum indicators such as high growth of GDP, forecast for the positive monsoon behaviour, softening inflation and fiscal direction are moving in tandem and supporting India’s lucrativeness to the global investors.

While the fourth quarter growth has been strong at 7.8 per cent, there has been upward revision in the previous quarter numbers and that has strongly propped up the overall GDP growth for the year. Another important point is the sharp divergence of 1 percentage point between GDP and GVA growth in 2023-24 as against 0.3 percentage point in 2022-23. This is mainly because of sharp growth in net taxes (due to higher tax collection and lower subsidies). This has also aided in pushing up the GDP growth.

Real GDP has been estimated to grow by 8.2% in FY 2023-24 as compared to the growth rate of 7.0% in FY 2022-23. Nominal GDP has witnessed a growth rate of 9.6% in FY 2023-24 over the growth rate of 14.2% in FY 2022-23. The economy grew 7.8% in the March quarter of FY24, according to data released by the National Statistical Office (NSO). 

According to the NSO data, real GDP, or GDP at constant prices, is estimated to attain a level of ₹173.82 lakh crore in 2023-24, against the first revised estimates (FRE) of GDP for 2022-23 of ₹160.71 lakh crore. “The growth rate in real GDP during 2023-24 is estimated at 8.2% as compared to 7.0% in 2022-23,” it stated.

Nominal GDP or GDP at current prices is estimated to attain a level of ₹295.36 lakh crore in 2023-24, against ₹269.50 lakh crore in 2022-23, showing a growth rate of 9.6%. The real GDP in the March quarter of 2023-24 is estimated at ₹47.24 lakh crore, against ₹43.84 lakh crore a year earlier, showing a growth rate of 7.8%.

The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent.

The Indian economy expanded 7.3% in the 2023-24 fiscal year ending in March, higher than 7.2% in the previous year, according to preliminary government estimates, with state spending on infrastructure projects offering a boost. The figure is higher than a 7% growth forecasted by the Reserve Bank of India in December. Government spending surged 4.1%, much higher than a 0.1% rise in the previous fiscal year, while a slowdown was seen in consumer spending (4.4% vs 7.5%), gross fixed capital formation (1.1% vs 11.4%), exports (1.4% vs 13.6%) and imports (13.2% vs 17.1%). 

On the production front, faster increases were seen in manufacturing (6.5% vs 1.3%), construction (10.7% vs 10%), finance and real estate services (8.9% vs 7.1%) and mining (8.1% vs 4.6%), while lower growth rates were recorded for agriculture (1.8% vs 4%), utilities (8.3% vs 9%), trade, hotels, transport and communication (6.3% vs 14%).

The GVA growth in the manufacturing sector accelerated to 8.9% in the March quarter against 0.9% a year ago. GVA growth in mining was 4.3% in the fourth quarter compared to 2.9% in the same quarter of the previous fiscal. Construction grew 8.7% in the quarter, up from 7.4% in the corresponding period of 2022-23. The agriculture sector growth decelerated to 0.6% from 7.6%.

The electricity, gas, water supply, and other utility services segment grew 7.7% during the fourth quarter from 7.3% in the year-ago period. GVA growth in the services sector — trade, hotel, transport, communication and services related to broadcasting — was 5.1% in the fourth quarter against a growth of 7% a year ago.

Financial, real estate and professional services grew 7.6% in the March 2023 quarter compared to 9.2% in the year-ago period. Public administration, defence and other services posted 7.8% growth in the quarter against 4.7% expansion in the same quarter a year ago.

India’s GDP growth for the full year 2023-24 and the January-March 2024 quarter exceeded both expectations and the consensus forecast. This robust performance was driven by continued strong investment and subdued private consumption growth, alongside a significant contribution from discrepancies — the unexplained component of GDP. These discrepancies also explain the notable divergence between GDP and GVA growth.”

But tourism, recreation, hotels, etc. did witness an upsurge due to pent up demand. Higher profits of companies in the hospitality sector also contributed to this increase. The financial sector continued to do well and grew by 8.4 per cent, the report said. The banking sector had witnessed high growth in both deposits and credit last year, which added to this buoyancy. BoB expects GDP growth for FY25 to be around 7.3-7.4 per cent with the base effect pulling down the growth.

However, private consumption growth remains subdued, increasing by only 4 per cent in FY24, which is the slowest rate in the last two decades, excluding the contraction during the pandemic year of FY21. For FY25, Care Ratings expects GDP growth to be around 7 per cent.

India’s growth numbers come at a time when many major global economies are grappling with slowing growth due to steep interest rates. The International Monetary Fund (IMF) has projected that in calendar year (CY) 2024, the US economy will grow by 2.7 per cent, while the Eurozone and China are expected to see growth rates of 0.8 per cent and five per cent, respectively.

This growth reiterates India’s position as the world’s fastest-growing major economy which currently holds the tag of being the world’s fifth largest economy. Despite the high base set by unexpectedly strong growth in FY24, India will achieve close to 7 per cent growth in FY25, thanks to sustained economic momentum. With robust growth and declining inflation, the Indian economy is in an enviable position, poised to remain the fastest-growing major economy in the world.

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