India’s GDP growth accelerates to 8.4% in Oct-Dec quarter

India’s gross domestic product (GDP) expanded by 8.4% in the October-to-December quarter, beating analysts’ estimates by a wide margin, as the country remained the fastest growing major economy.

The pace of growth in the fiscal third quarter is higher than the 7.6% expansion that was initially estimated for the second quarter but revised to 8.1% on Thursday.

GDP for the current fiscal is expected to grow 7.6%, higher than the 7.3% that the government estimated in January.

India’s chief economic advisor, V. Anantha Nageswaran, said mining, manufacturing, construction sectors have done well in nominal and real terms in the third quarter. Manufacturing expanded 11.6% in the third quarter, while construction grew 9.5% and mining grew 7.5%. The expansion in all three sectors was, however, lower than the the second quarter and came off a low base in the year-ago quarter.

“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,” Prime Minister Narendra Modi posted on X (formerly Twitter).

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!

— Narendra Modi (@narendramodi) February 29, 2024

Data released by the statistics ministry showed robust private sector investment activity and a bounce-back in services sector spending drove up economic growth, even as analysts pointed to a slowing in gross value added (GVA), or GDP plus subsidies minus indirect taxes.

GVA growth declined to 6.5% in the October-to-December quarter from 8.2% in the April-to-June quarter and 7.7% in the July-to-September quarter, prompting analysts to focus on the metric as a better gauge of the economy’s growth momentum.

“The GDP was boosted by a surge in net indirect tax growth to a staggering 32% in the quarter amid a sharp year-on-year contraction in the subsidy outgo,” Aditi Nayar, chief analyst at ICRA, said in a report, adding that “this divergent trend…is unlikely to be sustainable”

“The gap between GDP and GVA, which had averaged 20 basis points (bps) in the past eight quarters, ballooned to 190 bps in 3QFY. The GDP-GVA gap reflects the role of net indirect taxes (GVA + indirect taxes – subsidies),” Radhika Rao, senior economist at DBS Group, said in an analysis. One basis point is one-hundredth of a percentage point.

Investment growth continued to surpass consumption, accompanied by better non-farm activity, Rao said.

Investment growth, reflected in the gross fixed capital formation segment, was up 10.6% year-on-year in the October-December quarter, led by the government’s push but also accompanied by households’ real estate demand and private sector participation, Rao added.

The agricultural GVA contracted in the third quarter after an unfavorable monsoon, and industrial growth slowed, whereas the expansion in services improved, ICRA said.

Within industry, the growth in manufacturing, and mining and quarrying has been estimated to rebound to a healthy 8.5% and 8.1%, respectively, in fiscal 2024 from a low base in the past fiscal.  While GVA growth of construction is pegged to improve to 10.7% in FY24, despite a healthy base, that for electricity, gas, water supply and other utility services is estimated to ease mildly to 7.5% from 9.4%, respectively, it added.