A season of Great Expectations
"Global demand has been a challenge given uncertain global growth... But India's external sector is not showing any signs of vulnerability". -- CEA
"Robust 8.4% GDP growth in Q3 2023-24 shows the strength of Indian economy and its potential," tweeted Prime Minister Narendra Modi.
"Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat," he notes.
Overall, the Indian economy ticks many boxes in the right way. If there are any question marks, they are coming from the global economy: CEA Nageswaran
Truly the growth rate is commendable as it comes despite Ukraine-Russia war. And also notable is the fact that India is growing at the 'fastest pace' in an era when Japan & United Kingdom are into recession.
The economy grew sharply during the third quarter of FY24 at 8.4 per cent, compared to 4.3 per cent in the same period last year. In fact, Analysts had predicted growth below 7%.
Moreover, the Q3 GDP growth is better than 7.6% in Q2.
"GDP at constant (2011-12) prices in Q3 of 2023-24 is estimated at Rs 43.72 lakh crore, against Rs 40.35 lakh crore in Q3 of 2022-23, showing a growth rate of 8.4 percent," said the government's release.
The double-digit growth rate of the construction sector (10.7 per cent), followed by a good growth rate of the manufacturing sector (8.5 per cent) has boosted the GDP growth in FY24, according to the government.
The growth in these sectors has also been attributed as key reasons behind the stellar 8.4 per cent growth in the third quarter of the ongoing financial year.
Take aways:
--That the economy continues to defy expectations underscores the structural transformation. So there is a case for global agencies to make an upward adjustment to their estimate of India's potential growth.
--High-frequency indicators point toward continued good performance in Q4 FY24 too. That is a good sign for the growth momentum.
Observation:
India's economy grew at its fastest pace in one-and-half years in the final three months of 2023, led by strong manufacturing and construction activity and bolstering Prime Minister Narendra Modi's economic record just months before a national election.
"The ongoing growth momentum is indicative of the Indian economy's resilience, notwithstanding global headwinds," said Sunil Kumar Sinha, economist at India Ratings, noting that industrial growth continued its good run in the quarter.
India has consistently beat market expectations and is ranked as one of the fastest-growing economies in the world, with China struggling to recover after the pandemic and the euro zone narrowly escaping a recession.
Such a strong showing in the last major economic data release before elections due by May could bolster Modi's chances after he made high economic growth one of his main platforms at rallies across the country.
The December growth "shows the strength of Indian economy and its potential," Modi said in a social media post.
Modi has sharply raised government spending on infrastructure and offered incentives to boost manufacturing of phones, electronics, drones and semiconductors to help India compete with likes of Vietnam and Thailand.
The manufacturing sector, which for the past decade has accounted for 17% of Asia's third-largest economy, expanded 11.6% year-on-year in the December quarter, while investment growth was above 10% for the second consecutive quarter, and the construction sector grew by more than 9%.
"Manufacturing sector growth was supported by lower input costs," said Rajani Sinha, Economist at CareEdge
The farm sector, which accounts for about 15% of the $3.7 trillion economy, continued to struggle due to unfavourable monsoon rains. It contracted 0.8% in the December quarter, compared with 1.6% growth in the September quarter.
Slowing rural growth dragged down farm incomes and some farmers have hit the streets demanding higher procurement prices.
The pace of growth in real rural wages was around 1% in 2023 after contracting nearly 3% in the previous two years, according to ICRA, while average salaries in urban areas have been going up by nearly 10% a year.
However, policymakers remain optimistic on rural recovery.
"With the anticipated better value addition in the farm sector next financial year, rural demand growth and rural income growth will be even better and more evident in FY25," country's Chief Economic Adviser V Anantha Nageswaran said.
The Indian rupee is expected to have a quiet day on Thursday, as traders await a U.S. inflation reading that will be important in guiding expectations on when the Federal Reserve will cut interest rates.
India's market regulator has asked money managers to consider restricting one-off investments from clients in small- and mid-cap stock mutual funds and cut commissions offered for their sale, two sources with direct knowledge of the matter said.
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