Q3 FY24 GDP: Robust economic expansion is expected to enhance investor confidence

Q3 FY24 GDP: Robust economic expansion is expected to enhance investor confidence

After almost seven or eight quarters of poor growth previous to Q2FY24, the manufacturing sector saw a resurgence of growth in Q2 and Q3FY24, which is certainly positive.

Despite global headwinds and climate-related concerns, the Indian economy expects high GDP growth of 8.4% (y-o-y) in Q3FY24 and 7.6% (y-o-y) for the whole FY2024. demonstrates amazing adaptability. It's interesting to note that until FY24, the manufacturing and construction industries have been the main forces behind GDP growth.

After spending around seven or eight quarters in the low growth trap prior to Q2FY24, the manufacturing sector's growth resurgence between Q2 and Q3FY24 is definitely positive. Data from the Index of Industrial Production (IIP) indicated consistent increase from April to December of FY 2024 for a number of industries, including motor vehicles, trailers, transport equipment, machinery production, electrical equipment, fabricated metal products, basic metals, and non-metallic minerals. Products made of rubber and plastic, medications, refined petroleum products, food items, including drinks, and show speed. This indicates that the industrial sector has begun to react to the central government's vigorous drive for capital spending in the wake of the epidemic.

Nonetheless, sequentially (quarter-to-quarter), three industries have seen a slowdown in growth: manufacturing, power, and services. This might be because of the delayed start of winter and the muted effect of festivals, which has reduced demand for electricity. was impacted.

The GDP data on expenditures reveals a modest increase in private consumer spending year over year, but total investment spending, especially in Q3, FY24, is growing strongly. However, during Q3, FY24, the government's dedicated efforts to accomplish "fiscal consolidation" are evident as the government's capital spending (-3.3%) and consumer expenditure (-10.9%) both decreased throughout the quarter. There was a significant fall from quarter to quarter.

The trade components of the GDP numbers also demonstrate how well India's economy is doing on a worldwide scale. Due to sluggish global demand, export growth (in real terms) has slowed dramatically during the first nine months of FY24, yet import growth has not decreased much. In actual terms, imports have not decreased significantly because of the very high "import intensity" of Indian industrial activity.

The rise in net indirect tax collections, which has reached a six-month high growth of 32 percent, accounts for the 190 basis point difference between the GDP growth of 8.4% (y-o-y) and GVA growth of 6.5% (y-o-y) during Q3, FY24. this quarter. The question is whether India's indirect tax revenues would continue to expand at such a remarkable rate in the future given the current K-shaped rebound in "consumption expenditure."

As anticipated, the El Nino conditions that persisted throughout FY24 caused a protracted 18-quarter pause in the growth of "agriculture and allied activities," which finally slowed down to -0.8% in Q3 of FY24. During the most recent policy minutes, a member of the Monetary Policy Committee (MPC) brought up the issue of "rural consumption" and the consequent high food inflation. The GDP data released today explains why the RBI MPC took its time changing its position on monetary policy at its most recent policy meeting on February 8.

The combination of India's supporting policy mix, which includes inflation targeting monetary policy and prudent fiscal policy, together with the country's strong economy in the face of growing global challenges, would help to increase investor confidence in the Indian economy.