India’s third-quarter growth shows resilience, driven by consumption and industrial improvements
Suresh Chandra Sarangi
A question comes to mind: Is the worst for the Indian economy over? The second quarter growth, which had plummeted to 5.4%, was revised to 5.6%, against all expectations of a normal growth trajectory, and was a matter of high concern for planners and economists. They were all anxious about the economy’s growth path. The resilience the economy exhibited for almost a decade minus the COVID period was convincing. The NSO has declared the December 24 quarter growth at 6.2%, a 0.8% growth over a quarter.
Even earlier, the IMF projected an upgrade up to 7% for the FY 2024 -25. The IMF’s latest World Economic Outlook, that India’s economic growth may be to the tune of 6.5%. Says so, on the strength of Indian rural consumption as well as urban consumption. The latest upgraded 6.5% projection for FY 2024 – 25 is based on implementing sustainable development goals and the prospect of better domestic demand fueled by rural and urban consumption.
While analyzing the component of Q3 growth figures, it will be observed that the following high-frequency indicators have contributed substantially to an uptick due to a better performance in agriculture and industry during Q3. A boost to the consumption story has become a better growth driver. A Mahakumbh mela favors the GDP growth figure by almost Rs 3 lakh crores, which will have a good impact in Q4. The sectors that did well were tractor sales and vehicle sales.
There has been some growth in the manufacturing sector as evidenced in a pickup in 3rd quarter corporate earnings. The recovery appears to be K-shaped, fueled by consumer durables, textiles, telecom, and chemicals as well as capital goods and electricals. Government spending has also provided added support to the growth story. Though late, there have been some positive trends in CAPEX pickup.
The agricultural growth fueled by a better monsoon has remained at 5.6%, industry by 4.5%, manufacturing by 3.5%, construction by 7%, and the services sector has grown by 7.4%. The private consumption expenditure has gone up by 6.9%. All these indicators show a positive trend, though the overall picture is mixed.
The quarter 3 growth is marginally below expectations, and private consumption, which was a cause of concern in the first and second quarters, seems to have gathered momentum. In the growth story, the uptick in rural demand has been consistent and better than the urban demand. However, it exhibits visible positive signals by growth in a segment of passenger vehicles. The FMCG sector is experiencing higher volumes. The third quarter saw a progressive increase in government spending and better momentum is discernible.
However, the investment demand remains a bit subdued, and the capital formation is below expectation. The quarter 3 figures show that despite a large increase in centers’ CAPEX spending during quarter 3, the states and the private sector have not performed commensurably. Under these circumstances, the revised growth in FY 24 – 25 has been pegged at 6.5%, with agriculture expected to grow at 4.6%, industry at 5.6%, and services at 7.3%. The nominal GDP and the real GDP for FY25 have been pegged at 9.9% and 6.5%, respectively.
The exports have grown well with an expected figure of 7.1%. The real export has grown on the back of services exports at 10.4% during quarter 3 of FY 2024-25. During the third quarter, mining grew at 1.4%, manufacturing at 3.5%, electricity and utilities at 5.1%, and construction at 7%. Trade, hotels, transport, and communication have grown at 6.7%, finance and real estate at 7.2%, and public administration and defense at 8.8%. Quarter 3 GDP is marginally below the expected level of 6.3% of growth.
Based on an astonishing gathering of 65-66 crore people for the Maha Kumbh Snan that has generated the expected revenue of Rs 3 lakh crore. It appears that quarter 4 will remain buoyant so far as India’s growth story is concerned. Rabi sowing has been excellent, and this may accelerate the tempo of economic recovery in the positive direction in quarter 4 with a 25 basis points rate cut in the repo rate, reducing it from 6.5% to 6.25%, which may provide the necessary impetus to the economy in quarter 4.
The effect of an increase in the income tax slab may come in the first quarter of FY 25-26. Therefore, the Quarter 4 growth, wristbands and account of integrated uptick due to the Mahakumbh shall give a fillip to GST collection, fuel consumption, hotels, income from railways, transport, and communication significantly. In the long run, it is expected that overall growth momentum may not maintain the status quo of FY 24.
India’s core sector output grew at 4.6% in January, which will stimulate the economy during the final quarter. Reserve Bank of India has injected enough liquidity and has conducted a 10-billion-dollar forex swap that may accelerate growth with the availability of much-needed funds for bank credit expansion. A tariff war would provide stimulus to growth at 7% and provide competitiveness. Niti Aayog has decided to provide thrust on agriculture and industry that will spur smooth growth.
Chief Economic Advisor V Anant Nageswar says that the present third-quarter growth uptick shows the steam left in the Indian economy, which is unshaken by global risks and headwinds. India needs 7.88% growth continuously for 22 years to be included in the high-income group of the nation. By 2047, a significant part of the growth story of India is its continuous thrust for women’s empowerment. Ortiz said that India needs to grow at 7.6% in the fourth quarter to achieve 6.5% growth for the financial year 2024-25, as per Anant Nageswaran.
The third quarter pickup after a slump in the second quarter speaks that the Indian economy is still robust. It is to be seen that this growth could be sustained even after RBI holds the rates for the 10th time in a row. The policy rate remained too high to arrest inflation affecting growth. India’s investor sentiment has remained bearish because of turmoil in India’s capital market fueled by the withdrawal of funds by foreign institutional investors.
The position is unclear with analysts hammering on the point that going forward, investment may remain slower. Of course, this has dampened the growth momentum for almost the last 5 months for which the corporate earnings have not grown as per expectation, but one thing is a silver lining amidst the dark clouds the consumer price inflation has fallen to 4.31%, which shall remain a key factor in stoking growth in the last quarter. The rebound in the economy is expected to take a turn for the better.
The trend analysis says that a 6.2% growth supported by a movement in high-frequency indicators augurs well for the economy. But the pain points continue to harass me. The latest has been the Trumpian economic ideas that may distort growth as there appears to be a cloudy future going ahead, the economy being bogged down by Trump’s reciprocal tariff. The winter season bumper food crop production had kept the prices low, which assisted the CPI to decelerate to 4.31%, but as expected, the CPI may go up in the coming months due to the arrival of a grim summer season, and that may offset the growth statistics.
Any movement in oil prices may affect the growth momentum in a significant manner, besides the dangerously balanced geopolitics. All that the government has to do in the remaining one month of the fly is to ensure collection of the tax dues, take a calibrated approach for up gradation of growth in all the sectors keeping an eye on inflationary expectations. A further cut of 25 basis points in the repo rate may witness an increase in the flow of bank credit. Overall, the economy seems to be carving out a positive terrain for itself in the future.
(The writer is a former General Manager of Bank of India and currently a visiting professor at KIIT School of Management. Views expressed are personal.)
