India’s GDP growth seen moderating to 6% in Q3FY24

India's economy will grow at a moderate pace of 6% year-on-year sequentially in the October-December quarter of FY2023-24 from 7.6% in the previous quarter of the fiscal year, ratings agency ICRA has said.

ICRA's economic growth projections are lower than the Reserve Bank of India's (RBI) earlier estimates of 6.5% in Q3 FY24. The government will release Q3 FY24 GDP growth data on February 29, 2024.

The GVA growth is estimated to ease to 6% in Q3 from 7.4% in Q2 of the fiscal year. It'll be led by the industrial, agriculture and services at 8.8%, 0.5% and 6.5% growth, respectively, though growth in these will also see moderation against the previous quarter, ICRA's latest note on the country's Q3 GDP says.

The anticipated deterioration in the industrial sector growth in Q3 is being attributed to an adverse base effect -- over 2.3% in Q3 FY23 vs -0.5% in Q2 FY23 -- and a deceleration in volume expansion, with IIP growth of 5.8% in Q3 FY24 vs 7.8% in Q2 FY24. This is even though the continued deflation in commodity prices kept the profitability of some sectors favourable.

Additionally, a mild 0.2% contraction in the total spending of government and 25 states -- except Arunachal Pradesh, Goa and Manipur -- in Q3 is expected to have dulled the GVA growth in the quarter.

“Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in Government expenditure and an uneven monsoon are expected to dampen the GDP growth to 6.0% in Q3 FY2024 from 7.6% in Q2 FY2024,” says Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA.

India's gross domestic product grew 7.6% year-on-year in the July-September quarter, higher than the Reserve Bank of India (RBI) monetary policy committee's forecast of 6.5%. Q2 GDP, however, was lower than the 7.8% growth in the year-ago quarter.

ICRA has said the momentum in India’s investment activity moderated in Q3 FY24, with an easing in the YoY growth of nine of the 11 investment-related indicators, relative to Q2 FY2024. Due to the decline in output across all major kharif crops projected by the first advance estimates, ICRA projects the growth in agriculture, forestry, and fishing to dip to a muted 0.5% in Q3 FY2024 from 1.2% in Q2 FY2024. "This would be the lowest growth print for the sector since Q4 FY2019 (-0.9%)."

In contrast, the services GVA YoY growth is seen rising to 6.5% in Q3 FY24 from 5.8% in Q2 FY24, led by trade, hotels, transport, communication and services related to broadcasting.

However, the Centre's non-interest revenue expenditure contracted by a significant 19.1% in Q3 FY2024, after having expanded by 23.2% in the prior quarter, says the ratings agency. In aggregate, the total expenditure of the GoI and 25 state governments shrank by 0.2% in YoY terms in Q3 FY2024, after having expanded by 12.1% and 18.3%, respectively, in YoY terms in Q1 and Q2.

Notably, the Reserve Bank of India in its bi-monthly MPC announcement this month said the real GDP in 2023-24 is expected to grow at 7.3%, higher than the 7.2% recorded in 2022-23. It expects the economy to grow by 7% in 2024-25.