India’s GDP (Gross Domestic Product) numbers for the July-September quarter of 2023 do much to explain why the country is being viewed as a safe harbour for global investors dogged by geopolitical turbulence and slowdown fears elsewhere. The 7.6 per cent real GDP growth for Q2 FY24 has significantly beaten the Reserve Bank of India’s conservative forecast of 6.5 per cent and even shot past projections of 7 per cent from some private forecasters.

The disaggregated numbers show that in Q2, the economy managed to fire on many more cylinders than before. Improving trends in the Index of Industrial Production had hinted at an industrial revival. But the double-digit growth rates managed by Gross Value Added (GVA) in mining (10 per cent growth in Q2 against 5.8 per cent in Q1), manufacturing (13.9 per cent versus 4.7 per cent), utilities (10.1 per cent versus 2.9 per cent) and construction (13.3 per cent versus 7.9 per cent) still come as a big surprise, especially in the backdrop of elevated interest rates and weak export demand. Industry GVA appears to have benefitted strongly from declining inputs costs, which were also reflected in strong (66 per cent) operating profit growth from India Inc in Q2. While industry picked up, services slowed with trade, hotels and communications decelerating to 4.3 per cent growth in Q2 (9.2 per cent in Q1). Financial services, real estate, etc., also halved their growth to 6 per cent. The first isn’t very worrying given a high-base effect.

Government consumption and capital expenditure carried the day, growing by 12.3 per cent and 11 per cent, respectively, in Q2 FY24. Despite the global situation, exports managed to turn around from a 7.7 per cent contraction in Q1 to a 4.4 per cent growth in Q2, which is noteworthy. Credit for this must perhaps go to services exports which have been making up for sluggish merchandise shipments. While these were the bright spots, the worries stem from the continuing slump in private consumption (PFCE down to 3.1 per cent in Q2 from 6 per cent in Q1) and the poor show by agriculture with 1.2 per cent growth. As the consumption of premium products and services favoured by urban consumers has been brisk (retailers reported bumper festival sales), PFCE seems to have been dampened by lacklustre rural sentiment. With a prolonged El Nino clouding the rabi outlook, it is moot if recent interventions from the Centre targeting rural poor — PM Garib Kalyan Yojana extension, proposal for a higher PM Kisan payout, liberal fertilizer subsidies — can coax distressed rural consumers out of their blues.

Two other factors can also act as speed-bumps to India’s racing economy. The first is a possible slowdown in government spending and capex in the run-up to, and just after, general elections in 2024. While this may prove temporary, a more serious risk could arise from tightening global financial conditions or a US slowdown hurting services exports. All this however, would not detract from the resilience being displayed by the Indian economy in a turbulent world.