Economic growth accelerates in October–December

GDP reading: Annual GDP growth rose to 6.2% in October–December (Q3 FY 2024) from 5.6% in July–September. The reading matched market expectations, and helps cement India’s status as the world’s fastest-growing large economy. However, it still marked one of the weakest readings in the post-pandemic era, suggesting the economy is on a downtrend, and was far below the 8% rate that economists say is needed to meet the Prime Minister’s goal of making India a developed country by 2047.

Drivers: Household spending increased 6.9% in October–December, which was above July–September's 5.9% expansion, fueled by the boost to rural consumption from favorable rains and a strong harvest. Moreover, public spending improved to an 8.3% increase (July–September: +3.8% yoy), aided by a post-election bout of expenditure. Furthermore, the contribution of net trade to GDP growth roughly doubled to 2.5 percentage points from 1.2 percentage points; exports of goods and services growth hit an over one-year high of 10.4%, picking up from July–September's 2.5%, driven by IT and financial services. This outweighed a softer drop in imports of goods and services of 1.1% (July–September: -2.5% yoy). Less positively, fixed investment growth fell to 5.7%, marking the weakest reading since January–March 2023 (July–September: +5.8% yoy), potentially weighed on by past interest rate hikes by the Central Bank.

GDP outlook: GDP growth is projected to hit a one-year high in January–March, with strong harvests boosting rural private consumption and recent tax cuts stimulating domestic demand. However, the pace of expansion is seen remaining below the 10-year pre-pandemic average of 6.9%, and will be due in part to a one-off boost from the government squeezing out infrastructure projects to meet capital expenditure targets. In addition, U.S. tariffs pose a downside risk to the outlook.

Panelist insight: Nomura’s Aurodeep Nandi and Sonal Varma said: “In our view, the cyclical growth slowdown still has legs. Urban consumption is likely to remain weak as incomes struggle amid balance sheet stress. Companies are struggling with tepid consumer demand, and private capex faces headwinds from an uncertain global environment, softer domestic demand, higher interest costs and an influx of Chinese imports. As the recent budget confirmed, public capex has peaked, and while not insignificant, the outlay has been kept unchanged at 3.1% of GDP. Meanwhile, the income tax concessions for the middle class are well-intentioned, but may struggle to move the needle much on growth.”

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