Q4 GDP at 7.6% and FY24 GDP at 8.2%, flatters the street

1 Jun 2024 , 03:11 PM

RAISE A TOAST TO INDIA’S GDP GROWTH

When the MOSPI published the GDP data for Q4FY24 and for the full fiscal year FY24, it did come as a pleasant surprise. The fourth quarter GDP growth at 7.6% was substantially better than the street estimates of around 6.5%. After growing at over 8% in the first 3 quarters, the 7.6% growth in the fourth quarter ensured that the full year FY24 GDP growth stood at a healthy 8.2%. For the last 3 years, India has been the fastest growing large economy. We are only talking about economies with GDP more than $1 Trillion to make the sample more comparable. This is the third year in a row that India has been the fastest growing large economy. However, the GDP numbers also beat the government’s own expectations.

The legendary playwright George Bernard Shaw once said, “If all the economists in the world were laid end to end, they would still not reach a conclusion.” Perhaps a much better definition was provided by Steven Levitt, the highly celebrated author of “Freakonomics.” According to Levitt, the problem is that most economists think almost alike; and that seems to be the problem here. They all began with the assumption that GDP would be tepid in the fourth quarter, ignoring the momentum of the first three quarters. Then, why did the government get it wrong? Most likely, the government was being cautious, especially considering the upcoming elections, when it projected full year GDP growth of just 7.6% in February 2024. As the business wisdom goes, “it is always better to under-promise and over-deliver.” Lighter part of economics apart, let us move to the GDP story.

HOW GDP GROWTH EVOLVED IN Q4-FY24

The table captures the item-wise segregation. To get a more realistic picture, we have considered the GVA growth. GVA is GDP is more realistic as it is shorn of the impact of taxes and subsidies.

Real Sectoral Growth (%)	Q1 FY23	Q2 FY23	Q3 FY23	Q4 FY23	Q1 FY24	Q2 FY24	Q3 FY24	Q4 FY24
Agriculture	2.66	2.27	5.19	7.64	3.74	1.74	0.40	0.57
Mining / Quarrying	6.56	-4.13	1.37	2.87	7.05	11.07	7.50	4.25
Manufacturing	2.18	-7.19	-4.78	0.95	4.95	14.30	11.54	8.94
Utilities	15.55	6.41	8.65	7.30	3.17	10.53	8.97	7.69
Construction	14.69	6.85	9.47	7.41	8.57	13.55	9.58	8.70
Trade/Hotels	22.09	13.20	9.17	6.97	9.69	4.51	6.95	5.13
Financial Services	10.49	8.71	7.69	9.18	12.61	6.24	6.98	7.58
Defence and admin	23.59	7.30	3.52	4.66	8.25	7.75	7.51	7.77
Real GVA	11.34	5.04	4.83	6.03	8.26	7.69	6.79	6.27
Net Taxes	37.60	10.66	-2.56	7.66	7.94	12.65	31.23	22.15
Real GDP	12.81	5.46	4.26	6.18	8.24	8.08	8.57	7.76

Data  Source: MOSPI – all are percentage growth figures (in %)

Before we go ahead, it must be noted that all of the above are real growth data, which is net of the inflation effect, and we shall look at the nominal data also at a later stage. Here are some of the key takeaways from the real GVA / GDP data above.

• For Q4-FY24, the GVA growth has been pegged at 6.27%, although the Q3 GDP was upgraded by 29 bps to 6.79%. One might wonder how the GVA is so vastly different from the Real GDP growth at 7.76%. The reason is the impact of the net tax revenues and subsidies, both of which played a significant role.
• The fourth quarter GDP growth was the only quarter to be below 8%, after the first 3 quarters reported growth of 8% plus. However, on a much higher base, some marginal pressure on growth is totally acceptable.
• When the third quarter data was released, we have said that the government was being deliberately conservative since full year GDP had to be above 8%, considering the momentum of the first three quarters. That has turned out to be true.
• Let us come to the specific items. Obviously, farm output has been under pressure and has consistently been slipping for the last 4 quarters, reaching just about 0.57% in Q4, after the Rabi season also disappointed and overall farm output was lower in 2024.
• Manufacturing has done a real turnaround, with the GVA in Q4 at a robust 8.94%. That turnaround has been on the back of better capacity utilization in industry and higher infrastructure investments by the government and the private sector.
• Among the contact-intensive sectors, financial services and defence and administrative services have improved on a sequential basis, while trade has shown some pressure in the fourth quarter.

In a nutshell, the growth numbers have flattered, despite a rather disappointing show by agriculture output. Manufacturing and services have been very robust overall.

HOW NOMINAL GDP ESTIMATES LOOK FOR Q4-FY24

Nominal GDP is the value of GDP before the impact of inflation. While real GDP is the default reference, the nominal GDP has implications for tax revenues and job creation.

Nominal Sectoral Growth (%)	Q1 FY23	Q2 FY23	Q3 FY23	Q4 FY23	Q1 FY24	Q2 FY24	Q3 FY24	Q4 FY24
Agriculture	13.19	10.19	6.70	9.01	4.43	8.06	5.11	4.56
Mining / Quarrying	40.60	15.16	7.46	-2.46	1.29	12.02	6.23	7.03
Manufacturing	13.93	0.62	-0.17	3.47	2.11	11.94	10.55	7.72
Utilities	10.03	6.78	4.12	-1.22	13.47	9.32	5.56	11.16
Construction	33.81	18.43	15.47	11.07	6.26	12.92	10.53	8.52
Trade/Hotels	38.97	25.24	15.08	9.16	7.14	4.35	7.68	5.83
Financial Services	24.07	19.93	15.45	15.27	12.73	7.87	9.28	9.52
Defence and admin	30.35	14.00	9.31	11.02	13.86	14.10	13.16	13.08
Nominal GVA	24.16	14.75	9.82	9.21	8.22	9.26	8.72	7.97
Net Taxes	41.03	17.07	5.06	8.98	10.90	13.14	28.21	32.95
Nominal GDP	25.52	14.95	9.41	9.19	8.46	9.61	10.35	9.90

Data  Source: MOSPI – all are percentage growth figures (in %)

As we stated earlier, the nominal GDP and GVA numbers are relevant as they hint at the impact of GDP gross of taxes. Here is a quick comparison of the nominal and real GVA and GDP numbers.

• Let us talk about GDP first. The Nominal GDP growth for Q4-FY24 was at 9.9%, but the Q3GDP was upgraded by 28 bps to 10.35%. Nominal GDP growth has been above 8% for 8 quarters in succession. Today, the impact of inflation on GDP is much lower and that impact is likely to taper further as we go ahead.
• In terms of agricultural GVA growth, it was at 4.56%, but interestingly the Q3 agricultural GVA was upgraded 127 bps to 5.11%. Of course, the nominal growth in farm output is also sharply lower than the average of the previous 6 quarters, and that can be attributed to the El Nino effect on the farm output.
• In the case of manufacturing the real GVA growth has fallen to single digits as compared to being in double digits in the previous two months. That is evident when you see that most of the corporate top line thrust is now coming from banks and not manufacturing.
• The impact of net taxes has been quite high this year and that is evident in the sharp spike in taxes amidst robust collections by the government. In fact, on tax collections, the government just reported bettering the targets in FY24.

The quick takeaway from the above table is that Indian economy is growing at a much better pace in nominal terms and in real terms too. It is true that services are driving growth more than manufacturing, but that is understandable.

REAL AND NOMINAL GROWTH FOR FY24 (ACTUAL DATA)

Having looked at the real and nominal performance of GVA growth for the fourth quarter and a comparison of the previous quarters, let us now turn to the actual data for the full fiscal year FY24. The table below captures real GVA growth for FY24, compared to FY23.

Sector	GVA FY22 (₹ in Crore)	GVA FY23 (₹ in Crore)	GVA FY24 (₹ in Crore)	FY23 Growth (%)	FY24 Growth (%)
Agriculture	21,70,106	22,72,250	23,04,982	4.71	1.44
Mining / Quarrying	3,09,276	3,15,256	3,37,623	1.93	7.09
Manufacturing	25,61,033	25,04,663	27,51,680	-2.20	9.86
Utilities	3,17,966	3,47,973	3,74,174	9.44	7.53
Construction	11,93,532	13,06,256	14,36,081	9.44	9.94
Trade/Hotels	24,80,380	27,77,723	29,55,767	11.99	6.41
Financial Services	31,22,847	34,05,474	36,91,645	9.05	8.40
Defence and admin	17,21,699	18,75,304	20,21,798	8.92	7.81
GVA at Basic Prices	1,38,76,840	1,48,04,901	1,58,73,751	6.69	7.22

Data  Source: MOSPI

The real GVA growth for FY24 is 53 bps better than in FY23, which shows that, shorn of taxes and subsidies, FY24 has still been better than FY23. If you compare the FY24 data with the actuals for FY23, then clearly it is agriculture that is sharply down and putting pressure. On yoy basis, agricultural growth is down 327 bps. Trade / hotels and financial services have also tapered due to the early enthusiasm of contact intensive services waning. However, the real thrust came from mining and manufacturing. While real mining growth jumped from 1.93% to 7.09%, the real manufacturing growth has turned around from -2.20% to 9.86% in FY24. Manufacturing has done better than the FY24 estimates at the end of third quarter. Let us now turn to the nominal growth in GVA for FY24 versus FY23.

Sector	GVA FY22 (₹ in Crore)	GVA FY23 (₹ in Crore)	GVA FY24 (₹ in Crore)	FY23 Growth (%)	FY24 Growth (%)
Agriculture	40,99,473	44,84,268	47,25,223	9.39	5.37
Mining / Quarrying	4,39,339	4,94,602	5,25,881	12.58	6.32
Manufacturing	33,92,605	35,36,461	38,19,749	4.24	8.01
Utilities	5,77,793	6,04,209	6,63,458	4.57	9.81
Construction	18,35,674	21,78,693	23,83,877	18.69	9.42
Trade/Hotels	36,74,918	44,10,148	46,84,542	20.01	6.22
Financial Services	46,45,873	55,20,163	60,64,251	18.82	9.86
Defence and admin	29,69,909	34,30,497	38,95,167	15.51	13.55
GVA at Basic Prices	2,16,35,584	2,46,59,041	2,67,62,147	13.97	8.53

Data  Source: MOSPI

That is where the dichotomy is more pronounced. While real GVA growth for FY23 and FY24 have been at par, the nominal growth for FY24 at 8.53% is sharply lower than the nominal growth of 13.97% in FY23. The difference is that inflation has been controlled a lot better in FY24 as a direct outcome of the hawkish policies adopted by the RBI. However, this fall has had its impact on the ability of the government to enhance its capex outlay for FY25.

READING THROUGH THE MAZE OF GDP NUMBERS

The GDP growth and the GVA growth for Q4 has been much better than the street expectations and also the government’s own projections. That is a good problem to have. However, here are some key takeaways from the numbers.

a. As expected, the government did a lot better than its own estimates of GDP growth for FY24. While agricultural growth has been tepid and some of the contact intensive sectors have not maintained the momentum, the turnaround in FY24 comes from mining, quarrying, and manufacturing. The manufacturing thrust comes from better capacity utilization and robust order book positions.

b. The GDP announcement must be seen in conjunction with two other data points. Firstly, the core sector data announced on the same day as the GDP data came in at 6.2% for April 2024. That is a signal that the slightly slowdown in capex spending by the government has not really impacted the pace of GDP growth. That means; the lag effect of the capex and the downstream effects are still functioning. One only hopes that part of the RBI largesse in the form of ₹2.11 Trillion dividend for FY25 will go towards boost capex spending in FY25.

d. But the big cause of celebration is the sharp fall in the fiscal deficit. For FY24 the interim budget had aggressively reduced the fiscal deficit from 5.9% to 5.8% of GDP. The actual fiscal deficit data has come in at 5.6% of GDP, which is incredibly lower than estimated. It puts the Indian economy to pull down the fiscal deficit below 5% in FY25 and below 4.5% in FY26. After all, when the going is good, it is also the best time to take care of fiscal prudence.

Overall, the GDP growth for Q4 and for FY24 appears to have flattered on the upside. It has surprised some and amazed many. For now, it is time to raise a toast to the incredible India growth story!