India’s latest GDP numbers cement its position as the world’s fastest growing major economy

It was indeed a surprise. India’s Q2 GDP growth rate printed on the upside at 7.6%, as briefed in advance both by the government and the RBI.

The final number hit it out of the park, well clear of the consensus projection of 6.5-6.8%. However, sequentially, it represented a deceleration as it was 20 bps lower than Q1’s 7.8%.

A 7%-plus growth rate for two successive quarters, amid global headwinds and high inflation, appears to be the surest sign of India’s economic heartbeat regaining its rhythm.

The feel-good cheer, however, ends with headline number as the sub-components of GDP made uneven contributions. Once again, it’s the government expenditure that injected the much-needed economic glucose, clocking a growth of 12.35% during Q2.

Offering some solace, private investments, the missing piece in India’s growth recovery, seems to have finally warmed up to its role as a willful wingman. In Q2, it saw a decent double-digit growth at 11%. Private consumption could only turn up a weak 3.1% increase over last year and barely 2% rise on a sequential basis. But the dismal growth in consumption is hardly a surprise as higher retail inflation, compared with Q1, and rising interest rates squeezed household budgets.

In terms of absolute numbers, real GDP stood at Rs 41.74 lakh crore in Q2, as against Rs 38.78 lakh crore a year before, going by the provisional estimates released on Thursday. With this, for the first half of FY24, real GDP printed at Rs 82.11 lakh crore compared to Rs 76.22 lakh crore in H1, FY22, translating to growth of 7.7%.

The biggest drag was the anemic 1.2% growth seen in agriculture and allied services, thanks to an erratic monsoon that delayed sowing activity. It also explains the weak recovery in rural demand consumption. In fact, uneven rainfall, which could dent rural demand further, is seen as one of the downside risks for growth for the back half of the fiscal. A possible slowdown in government capex, weak external demand and the cumulative impact of monetary tightening are other factors that could further worsen India’s growth prospects.

Meanwhile, industry and services sectors maintained their momentum, making up for the slack in agricultural sector output.

In a significant turnaround of sorts, both mining and manufacturing registered double digit growth of 10% and 13.9% respectively during Q2. Both were in negative territory just a year before. Likewise, electricity and utility services, and construction clocked robust growth of 10.1% and 13.3% respectively — several notches above the rates seen during the past year. The happy-hour growth in the services sector, however, ended there as other components within the sector – namely trade, hotels, transport, financial, real estate and public administration – all came up with single-digit growth.