GDP Growth: India's Economy Grows Fastest In A Year, Will This Trend Continue In Coming Quarters?

India's gross domestic product (GDP) grew to 7.8% in the first quarter of FY24, marking the fastest annual pace in a year. However, the majority of experts say that the latest GDP print comes below their expectations, nevertheless, it makes India the fastest-growing major economy. However, these experts do not expect this pace to continue ahead and believe GDP growth will moderate over the next few quarters due to below-normal monsoon, narrowing differentials with year-ago commodity prices, and possible slowdown in the momentum of Government capex.

As per the National Statistical Office (NSO), India's real GDP or GDP at Constant (2011-12) Prices in Q1 2023-24 is estimated to attain a level of ₹ 40.37 lakh crore, as against ₹ 37.44 lakh crore in Q1 2022-23, showing a growth of 7.8 per cent as compared to 13.1 per cent in Q1 2022-23.

However, the latest growth rate is slower than the GDP rate of 13.1% witnessed in Q1 of the previous fiscal. But the growth has expanded significantly from 6.5% posted in Q4FY23. Real GDP registered a growth of 7.2% in FY23 compared to a growth of 9.1% in FY22.

Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA said, "Although a supportive base propelled India's GDP growth to a four-quarter high of 7.8% in Q1 FY2024, it nonetheless printed below our expectations of 8.5% as well as the MPC's projection of 8.0%."

Nayar highlighted that the lower-than-expected GVA growth was largely on account of the manufacturing sector, which saw a surprisingly meek uptick to 4.7% in Q1 FY2024 from 4.5% in Q4 FY2023, despite the improvement in manufacturing volumes, as depicted by the IIP for the same, and a deflation in commodity prices. The sharp, broad-based contraction in merchandise exports is likely to have weighed on the performance of manufacturing in Q1 FY2024.

Also, she added that the sharper-than-expected deceleration in the construction segment and the lower-than-expected uptick in the THTCS segment came as a surprise.

Meanwhile, the sequential improvement in the YoY growth was largely driven by the services sector, amid a sharp uptick in the growth of the FRP and PADOS segments, she said.

Similarly, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers said, "India's GDP growth in Q1 FY 24 at 7.8% was a tad below our expectations of 8%. This once again makes India the fastest growing major economy, a position the country is likely to maintain for several years."

Both ICRA and Anand Rathi economists believe GDP to moderate going ahead.

Hajra said, "Yet, we do not expect this pace to continue for the rest of the year and see the yearly growth at 6.2%. But that too is a very good performance against the current global backdrop."

"We expect consumption to remain resilient and net exports to improve during the year but remain a drag. We expect slowdown in investment. But this is likely to recover in FY25. With strong growth and elevated inflation, the RBI would be hard pressed to tighten monetary policies. If retail inflation does remain high in August, we would expect a symbolic rate hike," Hajra concluded.

While Nayar said, "We expect GDP growth to moderate over the next few quarters, on the back of what is likely to be a below-normal monsoon, narrowing differentials with year-ago commodity prices, and possible slowdown in momentum of Government capex as we approach the Parliamentary elections. For now, we are maintaining our FY2024 GDP growth estimate at 6.0%, lower than the MPC's projection of 6.5% for the fiscal."

Furthermore, Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE said, "Despite prevailing elevated interest rates, the economy has managed to not only navigate the headwinds but also capitalize on the opportunities. The convergence of strong services growth and a revival in manufacturing underscores the concerted efforts of various sectors and policies to propel our economy forward. This momentum lays a solid foundation for sustained growth ahead."

RBI predicted the country's GDP growth to be at 8% for the first quarter of FY24. After Q1, RBI's projections have trimmed to 6.5% growth in Q2, 6% in Q3, and 5.7% in Q4. For the full year 2023-24 fiscal, RBI expects GDP growth to be at 6.5%.