India's GDP growth might slow down as a result of the ongoing decrease in rural demand

 India's GDP growth might slow down as a result of the ongoing decrease in rural demand

India's GDP growth might slow down as a result of the ongoing decrease in rural demand

Data consumption reveals a narrative flaw. The amount spent on private final consumption fell as growth almost half to 3.1% in Q2 from 6% in Q1. The agricultural sector, which expanded by only 1.2%—its worst growth in four and a half years—was another source of disappointment.

Strong increase in mining and manufacturing propelled the second quarter's 7.6 percent GDP growth, which was stronger than anticipated.

With a 7.6% GDP growth rate in the July–September 2023 quarter, India continues to have the fastest expanding economy in the world. This is mostly because of the country's expansion in manufacturing and construction. Region.

Policymakers and analysts were pleasantly surprised by the second quarter's GDP figure, which came in far higher than the consensus projection of 6.8% for the same time.

The better-than-expected GDP print for July–September, according to Emkay Global Chief Economist Madhavi Arora, is a result of robust corporate earnings, a robust fiscal impetus, increased government investment in the year before the election, and a thriving banking sector. by lenient lending guidelines and rapid credit expansion.

According to Aditi Nair of ICRA and Suman Chaudhary of Acuit Ratings & Research, the manufacturing sector expanded 13.9% year over year in Q2FY24, resulting in a robust GDP print for the time.

A lot of people are now likely to lower their previous projections for GDP growth in the current fiscal year. "Year-over-year growth to be surprisingly higher"

Member of the Prime Minister's Economic Advisory Council Sanjeev Sanyal now anticipates full-year growth to be surprising given the second quarter's performance.

The Indian economy expanded rapidly in the second quarter, and high-frequency indications point to further robust growth in the upcoming third quarter. Sanyal said on X (previously Twitter) on November 30 that the full-year growth for 2023–2024 is now probably going to be around the top end of the 6.5-7 percent range.

Compared to their earlier prediction of 6.2%, Anand Rathi Shares & Stock Brokers is now projecting full-year growth for 2023–24 to be at least 20 basis points higher. The ICRA has updated its forecast, which was previously 6 percent, to 6.2 percent.

According to the Economic Survey for 2023, real GDP growth for the current fiscal year would likely be between 6.8% and 6.8%, "depending on the path of economic and political development globally".

On November 30, Prime Minister Narendra Modi spoke on X (formerly Twitter) how the GDP growth figures for the second quarter of current fiscal year demonstrated the Indian economy's tenacity and fortitude in the face of global challenges. Shown.

Demand in rural areas is still weak

Notwithstanding the general excitement around the headline number, a more thorough examination of the data indicates that rural demand is really still decreasing.

Private final consumption expenditure (PFCE) decreased as growth almost cut in half, from 6% in the first quarter to 3.1% in the second. The agricultural sector, which expanded by only 1.2% from July to September—its worst growth in four and a half years—was another source of disappointment.

With just 3.1% year-over-year increase in PFCE, the consumption statistics does not seem to be very promising. We believe that this is mostly because of the weakening demand in rural areas, which is supported by the agricultural sector's slower development, which is estimated to be 1.2% yearly, says Suman Chaudhary, chief economist and head to investigate at Acuity Ratings & Research.

glancing forward

The majority of analysts expressed worry about a potential downturn in the second half of the current fiscal year, albeit acknowledging the rapid expansion of India's GDP.

"Due to base normalisation, weak outlook for agricultural output as well as rural demand, slower global growth, narrowing commodity price differentials along with previous monetary easing," along with ongoing difficulties like the transmission of strictures, ICRA's Nair forecasts a significant slowdown in GDP growth from October to March.

Nair and MK Arora both emphasized the government's comparatively modest expenditure, and they also pointed to the impending parliamentary elections as another factor that might cause India's already world-class growth to slow down in the second part of the fiscal year.

However, as Kotak Mahindra Bank chief economist Upasana Bhardwaj notes, the second-quarter GDP print has significantly raised the full-year GDP figures, even if growth is predicted to drop in the second half.

The economic recovery is strong, according to Rajiv Kumar, a former vice-chairman of NITI Aayog, who spoke with Moneycontrol. This is because industries other than manufacturing had good development in the second quarter.

Though Kumar anticipates that India's GDP growth rate would surpass 6.5% for the whole fiscal year, he is unsure whether the country will be able to maintain this rapid pace in the next quarters. It's a "open question" here.