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India’s GDP grows at 7.6% for September quarter, exceeding street expectations

02 Dec 2023 10:46 IST
India’s economic growth known as gross domestic product (GDP) remained buoyant at 7.6 percent in the July-September 2023 quarter, exceeding street expectations, due to a resurgence in the manufacturing and construction sectors post coronavirus (Covid 19) pandemic-induced slump. This economic growth figures for the second quarter of the financial year 2023-24 (April-March) shows resilience and strength of the Indian economy.

India’s Prime Minister Narendra Modi termed the high GDP growth figures as resilient which depicts strength in the Indian economy. The elevated GDP growth in the September quarter at 7.6 percent far exceeded the Reserve Bank of India (RBI’s) estimate of 6.5 percent for the same quarter. Economists expect that the beyond expectation GDP growth in July-September 2023 quarter will push up estimate for full year by at least 0.1-0.2 percentage points.

Evincing satisfaction on India’s economic performance, Prime Minister Modi shared a post on social media ‘X’ (formerly Twitter), “The GDP growth numbers for the July-September quarter display the resilience and strength of the Indian economy in the midst of such testing times globally. We are committed to ensuring fast-paced growth to create more opportunities, rapid eradication of poverty and improving ‘Ease of Living’ for our people.”

Higher than expectations
The Monetary Policy Committee (MPC) of the RBI projected India’s GDP growth at 6.5 percent. India’s real GDP growth stood at 6.3 percent in the July-September quarter of the previous year and 7.8 percent in the April-June 2023 quarter. Economists attributed the GDP growth figures in the second quarter to high manufacturing and construction industries.

The growth in investments holds significance for the revival of the capital expenditure (capex) cycle in the economy, which, in turn, supports long-term growth. Notably, the construction (13.3 percent) and manufacturing (13.9 percent) sectors have played a pivotal role in driving economic growth during the second quarter of FY 2023-24. The ongoing upswing in the real estate sector and increased infrastructure activities are expected to further boost growth in the construction sector.

Madan Sabnavis, Chief Economist of Bank of Baroda, said, “GDP growth for the July-September quarter has been buoyant coming in at 7.6 percent. This was far beyond expectations. This will tend to push up estimate for full year. Manufacturing and construction were the clear leaders with growth of 13.9 percent and 13 percent respectively. In case of manufacturing high profit growth contributed to the buoyancy while construction was up due to housing as well as government capital expenditure (capex).”

Vivek Rathi, National Director Research of Knight Frank India, believes, “The 7.6 percent GDP growth in the September quarter has far exceeded the RBI’s 6.5 percent estimate for the period, ensuring that India remains on the growth path despite multiple global headwinds arising from economic and geo-political uncertainties. Noticeably, while the share of the private consumption in the GDP has decreased, there is a remarkable increase in the share of investments, as reflected in the Gross Fixed Capital Formation (GFCF). This suggests a shift in the economic landscape, where, despite private consumption being a key driver or economic growth, investments are gaining momentum.”

Mining and electricity clocked 10 percent growth which supported overall economic expansion. However, growth in services sector slowed down mainly due to base effects. Growth in trade, hotels etc. was up by only 4.3 percent and finance etc. by 6 percent. This still comes as a surprise given that the banking sector has done well on both deposits and credit. Gross fixed capital formation was up to 30 percent mainly due to support from government capex. For the first half between April and September 2023, India’s GDP growth came at 7.7 percent, an encouraging figure as it sets the trend for the second half.

Red flags
This is typically a less buoyant month for agriculture which will have lower output reflected in the October-December 2023 quarter. However, it will be important to see if rural demand revives in the October-December 2023 quarter given state of kharif crop. Interestingly, private investment needs to revive to keep the tempo going.

While profits will be up in the October-December 2023 quarter, the buoyancy seen in the same quarter will be missing. Hence, growth in manufacturing will get tempered. Meanwhile, government spending needs to be tracked in terms of capital expenditure.

Manufacturing sector leads
The highest growth was registered in the manufacturing industry at 13.9 percent in the July-September 2023 quarter as compared to a fall of 3.8 percent in the same quarter last year. It was 4.7 percent in the April-June 2023 quarter.

The second-highest growth was witnessed in the construction industry at 13.3 percent. It was 5.7 percent in the corresponding quarter of the previous year. In the sequential previous quarter i.e. April-June 2023, it was 7.9 percent. The electricity, gas, water supply and other utility services industry registered the third-highest growth of 10.1 percent as compared to 6 percent in the comparable quarter of last year. In the January-March 2023 quarter, it was 2.9 percent. During the July-September quarter, the agriculture industry grew at a slower pace of 1.2 per cent as compared to 2.5 per cent a year ago. It had grown by 3.5 per cent in the first quarter of this year.

Dharmakirti Joshi, Chief Economist of Crisil Ltd, said, “After a strong growth of 7.8 percent in the April-June 2023 quarter, the second quarter too surprised on the upside with 7.6 percent growth. This takes the first half GDP growth to a robust 7.7 percent. However, we still expect growth to slow in the second half due to deepening global slowdown; the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal; and erratic weather and an El Nino event creating some downside to agricultural growth prospects. The advance estimates from Ministry of Agriculture peg kharif production at 4.6 percent lower than last year. Despite moderation in the second half, India is expected to outperform other large economies this fiscal year.”