Strong growth in manufacturing pushed the economic growth in October-December quarter (Q3) of FY24 to 8.4 per cent, defying all the expectations. Also, growth rate for full fiscal of 2023-24 upped to 7.6 per cent from earlier projection of 7.3 per cent.

Data released by National Statistical Office (NSO) showed that growth rates during first two quarters of the current fiscal have been 8.2 per cent and 8.1 per cent, respectively. With this trend, Chief Economic Advisor V Anantha Nageshwaran hoped that high growth rate will be sustainable. “Post Covid growth rate has been 7 per cent plus for three consecutive years and we are hopeful same will continue in next fiscal too,” he said. The RBI has estimated growth rate at 7 per cent for FY24. He listed three reasons for sustainable growth – better prospect in agriculture, private sector investment picking up and high frequency economic indicators are showing good trend.

However, he cautioned about uncertainty prevails over merchandise trade, with WTO slashing its projection for world trade growth in 2023 by half to 0.8 per cent from its earlier estimate of 1.7 per cent in April. Also, prolonged geo-political uncertainty and tightened financial conditions also pose a challenge to the growth outlook.

Consumption expenditure

DK Srivastava, Chief Policy Advisor, EY India, said that most of the GDP growth has come about through robust non-agricultural growth on the supply side and substantial investment growth on the demand side. The main negative news on the demand side is the slowdown in consumption expenditure growth which has clocked now, only 3 per cent for both private and government final consumption expenditure. On the output side, agricultural growth is limited only to 0.7 per cent in FY24.

“Some surprises that need further exploration relate to GVA growth remaining at 6.9 per cent while GDP growth being revised upwards to 7.6 per cent. Also, the average GDP growth for the first three quarters of FY24 is 8.2 per cent implying that the fourth quarter growth would only be at 5.9 per cent,” he said.

In a statement, Chandrajit Banerjee, Director General of CII, said that robust expansion in overall economy came despite the recurring spate of geopolitical flashpoints and was premised on a healthy double-digit expansion in manufacturing and investment. The PLI scheme and host of other benefits announced for the manufacturing sector have buttressed the strong growth posted by the manufacturing sector.

“Indian economy is on a high growth trajectory supported by structural reforms and improvements in both ease & cost of doing business. This makes us confident that the Indian economy will continue to grow at 7 per cent plus growth rate over the medium term,” he said.

Some concerns

However, economists have also flagged some concerns. Sunil Kumar Sinha (Chief Economist) and Paras Jasrai (Senior Analyst) of India Ratings & Research felt that prevailing consumption demand is highly skewed in favour of goods and services consumed by the households belonging to the upper 50 per cent of the income bracket and therefore not broad based. This is reflected in the manufacturing growth which is also not broad based.

“Though global merchandise trade according to World Trade Organization (WTO) is expected to grow 3.3 per cent in 2024, trade fragmentation/near-shoring/friend-shoring may emerge as a risk for India’s exports. And finally, tighter financial conditions and lower/uneven 2024 monsoon rainfall could act as constraints for GDP growth going forward,” the duo said in a note.