Q3 GDP numbers beat estimates but economists have mixed opinions; here’s why

Defying all estimates, India’s economy grew to a six-quarter high at 8.4% in Q3 FY24 and exhibited over 8% growth in the preceding two quarters. The real GVA at 6.5% was also in line with expectations. The GDP and GVA numbers showed significant growth compared to 4.3% and 4.8% YoY growth in the year-ago period.

According to the data released by the National Statistical Office of the Ministry of Statistics and Program Implementation (MoSPI), the GDP growth is expected to increase by 7.6% and GVA growth by 6.9% in FY24.

In the wake of better-than-expected GDP numbers, brokerages and financial institutions have tried to explain the reasons behind high growth and hidden contradictions.

Fixed capital formation, which accounts for a 32% share in the GDP calculation, grew 10.6%, the main reasons behind the stellar growth along with the high net taxes, say analysts at brokerage Centrum.

In its latest note, Centrum observes that in Q3 FY24, the agricultural sector acted as a laggard for yet another quarter as it contracted -0.8% compared to 5.2% same quarter the previous year. It attributes the slow growth to irregular rains this monsoon season. However, even as the fear of global slowdown and geopolitical issues prevails, India remains on a strong footing backed by sound fundamentals, says Centrum, adding that as the FY24 GDP was estimated to average 7.6%, Q4FY24 GDP could grow at 6%.

SBI Research, in its latest on GDP, says that based on a 7.6% GDP growth estimate in FY24, Q4 GDP growth is estimated at 5.9%, which it believes is an "understatement". "Thus it is most likely that FY24 GDP growth could be within striking distance of 8%."

Notably, the NSO sharply revised (both upward and downward) both previous yearly and quarterly numbers. "The third quarter GDP numbers jolted the psyche and cognitive framework of most in markets while sweeping some by a pleasant surprise," writes Soumya Kanti Ghosh, group chief economic adviser, SBI Research.

Nuvama Institutional Equities, in its report, says while the real GDP growth is holding up, underlying activity is decelerating. For FY25, it thinks while the exports drag is fading, fiscal and monetary policy would push the economy lower. “We maintain FY25 growth forecast of 6% YoY, which implies a deceleration in economic activity."

Global banking major UBS, in its latest note on GDP, has lifted its FY25 GDP growth forecast to 7% for India. “Incorporating better than expected real GDP growth in Dec quarter (8.4%YoY vs. our estimate of 6.7%) and signals from our lead indicator suggesting resilient economic activity, we raise our India’s FY25 real GDP growth to 7%YoY (from 6.2%YoY earlier).”

Sumitomo Mitsui Banking Corporation, Singapore, in its GDP note, said the Indian economy continues to expand steadily, but as the growth of bank lending remains in the double digits, concerns about excessive lending prevail, it adds. "During the nonbank crisis in 2018, the Indian economy lost its growth momentum significantly as liquidity declined. Bank lending growth exceeded the nominal growth rate throughout 2023, and the risks involved should not be underestimated."