GDP crosses 8% in FY24 as services, manufacturing power Q4 growth to 7.8%

Earlier this month, Chief Economic Adviser V Anantha Nageswaran had said there was a “high possibility” of GDP growth touching 8 per cent in FY24. Commenting on the latest GDP numbers, Union Finance Minister Nirmala Sitharaman said it reflects “robust economic growth”.

“It is worthwhile to note that the manufacturing sector witnessed a significant growth of 9.9 per cent in 2023-24, highlighting the success of the Modi government’s efforts for the sector. Many high-frequency indicators indicate that the Indian economy continues to remain resilient and buoyant despite global challenges. India’s growth momentum will continue in the third term of PM Shri @narendramodi-led government,” Sitharaman posted on X after the numbers were released.

To a question on the slow growth in consumption expenditure, a source said, “In general, it is very rare that all cylinders of the economy fire at the same time. You need to see the overall growth rates. And only if some sectors are completely stagnant, then there should be a cause for concern. But we believe that with better monsoon and rural incomes picking up, we will see a faster growth rate in private final consumption expenditure in FY25 compared to FY24.”

Government expenditure continued to support growth, rising 0.9 per cent year-on-year in Q4, while investments — as reflected in Gross Fixed Capital Formation (GFCF) — grew by a robust 6.5 per cent. While the fourth quarter GDP growth rate was higher-than-expected, it was the lowest among all quarters for the year with Private Final Consumption Expenditure growing at just 4 per cent. An indicator for consumption demand, PFCE dropped as a share of GDP to 52.9 per cent — the lowest level in the 2011-12 base year series.

For the full financial year, capital formation recorded a growth rate of 9 per cent, while government expenditure grew 2.5 per cent. Consumption expenditure grew by 4 per cent, the slowest growth rate in the last two decades excluding the pandemic year.

Growth rate in Gross Value Added (GVA) terms came in lower at 6.3 per cent in January-March as against 6.8 per cent in the previous quarter and 6 per cent in Q4 FY23. For the full financial year FY24, GVA growth was recorded at 7.2 per cent as against 6.7 per cent in FY23. GDP is GVA plus net product taxes (taxes – subsidies).

The wide divergence between GVA and GDP rates are being seen on account of a sharp jump in net taxes, primarily indicating higher taxes and lower subsidies outgo in the last quarter. Net product taxes recorded a growth of 22.2 per cent in Q4 FY24 as against 31.2 per cent growth in the previous quarter and 7.7 per cent growth in the year-ago period.

In the fourth quarter of the previous financial year, among sectors, the secondary sector recorded the highest growth rate of 8.8 per cent, with manufacturing posting the highest GVA growth rate of 8.9 per cent and the construction sector growing by 8.7 per cent. In the primary sector, while agriculture grew by 0.6 per cent in January-March, the mining sector grew by 4.3 per cent. Tertiary or services sector grew by 6.7 per cent in Q4, with support from public administration, defence and other services at 7.8 per cent and financial, real estate & professional services at 7.6 per cent.

For the full year, both manufacturing and construction grew by 9.9 per cent each, while agriculture recorded growth of 1.4 per cent. Financial, real estate & professional services grew by 8.4 per cent in Fy24. Nominal GDP growth, which factors in inflation, moderated to 9.6 per cent in FY24 from 14.2 per cent in FY23 on account of a lower deflator. Per capita net national income increased to Rs 1,06,744 in FY24 from Rs 99,404 in FY23.

Economists said real GDP growth rate is expected to grow over 7 per cent in the current financial year too, supported by a higher dividend to the government by the RBI and higher fiscal space for the government to spend after the Lok Sabha elections.

“While private final consumption expenditure growth is still languishing at 4 per cent, the main demand side push is coming from gross fixed capital formation which has grown at 9 per cent. The external sector drag has also lessened. In Q4, the contribution of net exports turned positive after remaining negative for three successive quarters,” DK Srivastava, Chief Policy Advisor, EY India said.

“The investment growth has largely been driven by GoI’s capital expenditure growth. The full year CGA number shows a capital expenditure growth of 28.8 per cent. For four successive years, the GoI has shown a capital expenditure growth averaging 29.7 per cent. This large investment push by the GoI is the main growth driver resulting in India doing well in spite of continuing global tailwinds. We assess FY25 real GDP growth to be in the range of 7-7.5 per cent, expecting continued high capital expenditure growth in the forthcoming full year FY25 budget. There is reasonable fiscal space available to the government in spite of the recent elections. With a fiscal deficit at 5.6% of GDP, buoyancy of gross taxes at 1.4 in FY24, and a substantive rise in RBI dividends, the GoI is in a position to lay down a solid foundation for medium term growth averaging 7 per cent,” he said.

Consumption trend is likely to improve as rural consumption improves with a normal monsoon, Rajani Sinha, Chief Economist, CareEdge Ratings said. “Going forward, we expect GDP growth at around 7 per cent for FY25. Moderation in food inflation would also be critical for a broad-based improvement in consumption trend. Upswing in the private investment cycle would be contingent on a sustained improvement in domestic consumption and global growth outlook,” she said.