Ql growth at 7.8% as Indian economy braves headwinds

Strong domestic demand driven by government capex and a continuing recovery in contact intensive services helped the Indian economy build on its growth momentum despite external headwinds in the first quarter of the current fiscal year

- Roshan Kishore , Rajeev Jayaswal

India’s GDP growth in the quarter ending June was 7.8%, the National Statistical Office (NSO) said in a release on August 31. The latest numbers are exactly in line with a projection by Bloomberg poll of economists and 1.7 percentage points more than the 6.1% number in the previous quarter. To be sure, the latest growth numbers are marginally below the 8% projection by the Monetary Policy Committee (MPC) of the RBI.

Indian economy’s “growth prospects appear bright” despite downward risks from external factors such as “firming of prices of crude oil” and “prolonged geopolitical uncertainty”, chief economic adviser (CEA) V Anantha Nageswaran said while commenting on the GDP numbers. Analysts concurred with CEA’s assessment, identifying a service sector driven boost to domestic economy activity as an effective antidote to the headwinds from external markets.

To be sure, almost all projections, including RBI’s, expect the annual growth number for 2023-24 to be lower than the June quarter numbers. This is more a reflection of the fact that the June quarter numbers enjoy a favourable base effect. RBI’s MPC resolution released in August projected a growth rate of 6.5% for 2023-24 with quarterly growth numbers being 8%, 6.5%, 6% and 5.7% in the quarters ending June 2023, September 2023, December 2023 and March 2024 respectively.

An expenditure-side analysis of the GDP numbers shows that private consumption and investment (as captured by Gross Fixed Capital Formation) numbers have played an important role in driving the growth momentum. While Private Final Consumption Expenditure increased by 6% on an annual basis, investment spending increased by 8%. This provided a crucial buffer to the headline GDP number despite a three-fold decline in net exports of goods and services driven by a fall in exports and rise in imports.