The GDP growth in the third quarter ended December 2023 (Q3 FY2024), the official data of which is set to be released on Thursday, February 29, is likely to moderate to 6 per cent year-on-year (y-o-y), against 7.6 per cent in Q2 FY2024, according to a report by rating agency ICRA.
Further, the GVA growth is estimated to ease to 6 per cent in Q3 FY2024 from 7.4 per cent in Q2 FY2024, driven by the industrial (to +8.8 per cent from +13.2 per cent) and agriculture (to +0.5 per cent from +1.2 per cent) sectors, amidst an improvement in services (to +6.5 per cent from +5.8 per cent), according to the ICRA report.
“The anticipated deterioration in the industrial sector growth in Q3 FY2024 is partly attributable to an adverse base effect (+2.3 per cent in Q3 FY2023 as against -0.5 per cent in Q2 FY2023) and a deceleration in volume expansion (IIP growth of 5.8 per cent in Q3 FY2024 vs. 7.8 per cent in Q2 FY2024), even as the continued deflation in commodity prices kept profitability of some sectors favourable,” ICRA said.
Additionally, a mild 0.2 per cent contraction in the total spending of the Government of India and 25 state governments (all states except Arunachal Pradesh, Goa and Manipur) in Q3 FY2024 (+18.3 per cent in Q2 FY2024) is expected to have dulled the GVA growth in the quarter, the ICRA report added.
Aditi Nayar, chief economist and head (research & outreach) at ICRA Ltd, said, “Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in government expenditure and an uneven monsoon are expected to dampen the GDP growth to 6 per cent in Q3 FY2024 from 7.6 per cent in Q2 FY2024.”
ICRA estimates the industrial GVA growth to record a broad-based moderation to 8.8 per cent in Q3 FY2024 from 13.2 per cent in Q2 FY2024, led by all four sub-sectors, namely, manufacturing (to +10 per cent from +13.9 per cent), electricity (to +8 per cent from +10.1 per cent), construction (to +7 per cent from +13.3 per cent), and mining and quarrying (to +7 per cent from +10 per cent).
ICRA projects manufacturing GVA expansion at a healthy 10 per cent in Q3 FY2024, twice as high as the 4.7 per cent seen in Q1 FY2024, albeit lower than the 13.9 per cent recorded in Q2 FY2024, amid a deceleration in volume growth as reflected in the manufacturing IIP.
“The YoY growth in electricity generation tempered in Q3 FY2024 owing to moderation in demand (to +9.4 per cent from +11.7 per cent, respectively) with the onset of the winter season. Moreover, the pace of construction activity is anticipated to have slackened in Q3 FY2024 relative to Q2 FY2024, with the YoY growth in production of cement (to +4.5 per cent from +10.4 per cent), and steel (to +8.6 per cent from +15.4 per cent) witnessing a deterioration,” the report said.
The momentum in India’s investment activity moderated in Q3 FY2024, with an easing in the YoY growth of nine of the 11 investment-related indicators, relative to Q2 FY2024. For instance, the capital outlay and net lending of 25 state governments shrank by 3.9 per cent on a YoY basis, after having surged by 42.4 per cent in Q2 FY2024.
“Further, the YoY expansion in the Government of India’s (GoI’s) gross capex dipped slightly to 24.4% in Q3 FY2024 (-9.4% in Q3 FY2023) from 26.4% in Q2 FY2024 (+42.4% in Q2 FY2023), despite a low base. Other indicators reporting a slowdown in growth in this period include engineering goods imports, infra/construction goods output and CV registrations,” the ICRA report said.
Owing to the decline in output across all major kharif crops projected by the First Advance Estimates, ICRA projects the growth in agriculture, forestry, and fishing to dip to a muted 0.5 per cent in Q3 FY2024 from 1.2 per cent in Q2 FY2024. This would be the lowest growth print for the sector since Q4 FY2019 (-0.9 per cent).
In contrast to industry and agriculture, ICRA estimates the services GVA YoY growth to rise to 6.5 per cent in Q3 FY2024 from 5.8 per cent in Q2 FY2024, led by trade, hotels, transport, communication and services related to broadcasting (to +8.0 per cent from +4.3 per cent).
“Several high-frequency indicators related to this sub-sector displayed an improvement in their YoY growth in Q3 FY2024 relative to the previous quarter. This sub-set includes air cargo traffic, ports cargo traffic, GST e-way bills, railway freight, services exports, and the number of telephone subscribers,” ICRA said.
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