GDP growth strongly exceeds expectations in July–September

GDP growth slowed slightly to 7.6% year on year in July–September, the second quarter of FY 2023 (April–June: +7.8 yoy). However, the print strongly exceeded market expectations.

Boosted by pre-election spending, government consumption rebounded, growing 12.4% in July–September (April–June: -0.7% yoy). Strong government outlays also helped lead fixed investment growth to accelerate to 11.0% in July–September, from the 8.0% expansion recorded in the prior quarter. Adding a further positive impulse, exports of goods and services rebounded, growing 4.3% in July–September (April–June: -7.7% yoy). That said, dragging on the expansion, household spending growth waned to 3.1% year-on-year in July–September compared to a 6.0% expansion in April–June. In addition, imports of goods and services—which detract from the external sector reading—grew at a faster rate of 16.7% in July–September (April–June: +10.1% yoy).

Our panelists expect GDP growth to slow in the coming quarters, remaining around 6.0% through to the end of 2024; past rate hikes by the Central Bank will weigh on domestic demand. That said, India will remain one of Asia’s fastest-growing economies, boosted by strong foreign investment and government spending.

Analysts at EIU said: “In the light of the latest data, we have revised our forecast for real GDP growth for 2023/24 from 6.5% to 6.7%.” Analysts at Nomura warned about interpreting data for the next quarter given the recent Diwali holiday: “The non-synchronous timing of Diwali this year (in November as opposed to October last year) means that most high frequency growth indicators will be elevated on a y-o-y basis in October, but will also record a sharp drop in November when the opposing effects kick in. Hence, the ‘true’ strength of growth tracking in Q4 is likely to be confirmed only when we have enough data to consider the average performance in the two months.”

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