At 8.2 percent, India's GDP growth continues to surprise

(File) Sheets of steel being rolled at the POSCO India Pune Processing Center Pvt. Ltd. in MIDC Talegaon, outskirts of Pune, India. Image: Abhijit Bhatlekar/Mint via Getty Images
 
India’s GDP numbers beat expectations with 8.2 percent growth in FY24 as the economy saw a rise in investment spending even as consumption spending stayed tepid. Numbers released for Q4FY24 saw GDP coming in at 7.8 percent.
 
Government estimates had earlier placed FY24 growth at 7.6 percent. Strong growth also resulted in a reduction in the FYT24 fiscal deficit number to 5.6 percent.
 

The gross value added or GVA numbers for both Q4FY24 and FY24 were lower at 6.3 percent and 7.2 percent respectively. “The gap between the GDP from the expenditure side and the GVA from the supply side has continued to increase,” says Sakshi Gupta, principal economist, HDFC Bank. This was on account of the fact that subsidies were lower during the year while indirect taxes saw a rise. A fall in the wholesale price index also saw nominal growth at 9.5 percent compared to the double-digit growth in nominal GDP seen in FY23 and FY22.
 
While headline GDP numbers were strong they masked a growing weakness in consumption spending that accounts for two-thirds of growth. The increase in private final consumption expenditure stood at 4 percent, which was half the percentage increase in gross fixed capital formation at 8 percent.
 
The sluggishness in consumption is on account of spending in urban India having petered down after the post Covid bump in sales and rural spending being slow due to the unevenness of the monsoon in 2023. With this year’s monsoon forecast there is an expectation that rural spending would resume.

Also read: With a record $776.68 billion worth of exports in FY24, India's trade deficit narrows to $78 billion
 
For FY25 the Reserve Bank of India has kept its growth forecast unchanged at 7 percent and consumer price inflation at 4.5 percent. Lower food price inflation could prompt people in rural India to spend more, according to Gupta. Growth could be further aided by rate cuts in the second half of FY25.
 
For now, all eyes are on the first full Budget of the next government that should lay the direction for growth in the next five years. Keenly watched would be whether the government would give a boost to consumption either through tax cuts or increased subsidies or continue to boost capital spending. A pick-up in corporate capex will also be keenly watched.