Continuing with its spell of surprises, India’s real GDP which expanded by 7.8 per cent in the fourth quarter of FY24, once again managed to beat both official and private forecasts which were primed for 7-7.4 per cent growth. This takes the full-year growth to 8.2 per cent after factoring in National Statistical Office’s (NSO) revisions to the first three quarters’ data. The country managing a third consecutive year of 8 per cent-plus expansion after the shock of Covid, and that too in a world of slowing growth, is testimony to the resilience of Indian households and businesses to disruptions. However, a 22 per cent surge in net tax mop-up has widened the gap between GDP and GVA (Gross Value Added). Therefore, it is more useful to look at GVA to gauge the momentum in economic activity. On this score, it is clear that economic activity lost speed in Q4, with GVA growth slowing to 6.3 per cent from 6.8 per cent in Q3 (8.3 per cent and 7.7 per cent in Q1 and Q2).

The sectoral composition of GVA shows agriculture continuing with its lacklustre performance, with 1.1 per cent growth in Q4 the same as Q3. This is no surprise, given the erratic 2023 monsoon and precarious reservoir storage during the rabi crop. With a favourable Indian Ocean Dipole and an evolving La Nina expected to shower above-normal rains in the upcoming monsoon season, crop prospects will hopefully look up. Q4 also saw some deceleration in mining and utilities and manufacturing (8.9 per cent growth compared to 11.5 per cent in Q3). These segments could be reflecting the slowdown in private sector decision-making prior to elections. Services saw financial, real estate and professional services growing faster at 7.6 per cent in Q4 against 7 per cent in Q3, though trade, hotels etc slowed to 5.1 per cent from 6.9 per cent. Public administration, indicative of government revenue spending, picked up.

Overall, though there has been some deceleration in industry in Q4, there’s not much cause for worry. With the elections done and dusted, private sector activity and capex can revive. High-frequency data showing strong bank credit offtake, expansionary Purchasing Managers Indices and good core sector growth since April, suggest a robust pace of economic activity.

Sceptics will point out that GDP growth for FY24 has received a boost from the low deflator (1.3 per cent in FY24 compared to 6.7 per cent in FY23). This is true, but is reflective of wholesale inflation being very low this year. With the pickup in primary product prices in the last few months, this supply boost will no longer be in play going forward. The large figure on discrepancies (gap between GDP calculations using the output and expenditure methods) is a function of India’s large informal sector which defies accurate measurement. As both the deflator and discrepancies have been a feature of India’s GDP calculations for long, they don’t materially impact the reliability of the growth rates.