India grows at 7.6% in Q2, setting stage for solid FY24

India’s economic growth soared past most analysts’ expectations in the September quarter, expanding at 7.6%, fueled by manufacturing, mining and construction sectors, government data showed.

Gross domestic product (GDP) growth for the second quarter narrowly missed the 7.8% mark achieved in the June quarter, yet it was notably greater than the 6.2% seen in the September quarter of the previous year. For the first half of FY24, growth stood at 7.7%, which is lower compared to the 9.5% registered in the same period a year ago.

Manufacturing grew at the fastest pace of 13.9% against 4.7% in the previous quarter and a decline of 3.8% in the year-ago quarter, while construction grew at 13.3% against 7.9% in the past quarter and 5.7% a year ago.

“Manufacturing sustained expansion, endorsed by IIP (Index of Industrial Production) and core infrastructure growth,” chief economic advisor V. Anantha Nageswaran said.

Gross fixed capital formation, a gauge of investments, jumped 11% from a year ago against an 8% growth in the June quarter.

The finance ministry said that while growth prospects seem promising, external factors present potential risks. However, the ministry said the GDP figures from the July-September quarter suggest an upward trend, potentially exceeding the current financial year’s GDP growth forecast of 6.5%.

Sanjeev Sanyal, a member on the Prime Minister’s Economic Advisory Council, expects full-year growth to surprise on the upside.

“Indian economy registered a strong growth in Q2 and high-frequency indicators suggest that momentum will be strong in Q3 as well. The full-year growth for 2023-24 is now likely to be in the upper end of the 6.5-7 percent range,” Sanyal said on X (formerly Twitter).

GDP growth in the past quarter has exceeded the Reserve Bank of India’s forecast of 6.5%. The central bank had expressed grave concern about increasing inflation and its potential impact on the growth outlook at its recent monetary policy meeting. But the sterling growth in the September quarter may prod RBI to hold the policy rate at 6.5% for a fifth consecutive time.

“For the December quarter, we expect food inflation to soften, because of the government intervention and as the kharif harvest enters the market. Oil prices remain an unknown and could potentially play a spoilsport, if the Middle East conflict escalates. An adverse index base (inflation had seen a drop in the year-ago period) will somewhat restrict the downside in inflation for two months,” Crisil Ltd said in a report earlier this week.

An erratic monsoon took a toll on the farm sector, which grew at a mere 1.2% against 3.5% in the previous quarter and 2.5% in the year-ago quarter.

“Rural demand remains somewhat vulnerable to weak agricultural output this year. Rural related high-frequency indicators fared worse in the second quarter (such as FMCG IIP, tractor and two-wheeler sales, and NREGA demand). Kharif output is estimated to be lower, hit by an uneven monsoon. Lower reservoir levels on-year also risk the upcoming rabi output,” Crisil said in the report.

Prime Minister Narendra Modi said the GDP numbers for the second quarter demonstrate the Indian economy’s endurance and strength in the face of global challenges.

“The GDP growth numbers for Q2 display the resilience and strength of the Indian economy amid such testing times globally. We are committed to ensuring fast-paced growth to create more opportunities, rapid eradication of poverty, and improving ‘Ease of Living’ for our people,” PM posted on X.

Aditi Nayar, chief economist and head of research and outreach at ICRA, said, “The y-o-y growth in India’s GDP fell slightly sequentially to 7.6% in Q2 FY2024 from 7.8% in Q1 FY2024, exceeding both our (7.0%) and the consensus estimates for the quarter.

Nayar said the manufacturing sector was largely responsible for the surprise, with growth leaping to a nine-quarter high of 13.9% in Q2 from 4.7% in Q1, owing to a favorable base, an increase in volume growth, and an improvement in profit margins due to ongoing deflation in input prices.

The Organisation for Economic Co-operation and Development (OECD), a grouping of advanced economies, this week said it maintains its 6.3% growth forecast for FY24, citing rising services exports and public investment as drivers of the economy.

OECD has, however, forecast a decline in GDP to 6.1% in FY25 due to unfavorable weather events and a weaker worldwide outlook.