In a way, the third quarter GDP number is released at a rather peculiar time in the year. One, it comes a good two months after the quarter has ended and two, any mystery with respect to the future — that is, any cues that could be extrapolated or trends that can be conjectured for the coming quarters — is taken away by the first advanced estimate which gives a number for the whole fiscal year and is released in January, a good 50 days ahead of the release of third quarter numbers.
But given the context of the sharp slowdown in the second quarter and the global uncertainty post Donald Trump, the third quarter numbers can be looked at in conjunction with the second advance estimates of GDP to glean a few trends. Note that the second quarter growth of 5.4 per cent was shocking and significantly lower than the 8.1 per cent growth recorded in the second quarter of the previous year and marked a seven-quarter low, falling short of both market expectations of 6.5 per cent and the Reserve Bank of India’s earlier estimate of 7 per cent.
So, the first and foremost question is — has the Indian economy turned the corner?
The answer from the set of numbers is yes. There is a rebound from the July-September quarter levels as growth has improved to 6.2 per cent from 5.6 per cent (revised upwards from 5.4 per cent). In comparison, growth in the third quarter of 2023-24 was 9.5 per cent. Even in GVA terms, there is an improvement from 5.8 per cent in the second quarter to 6.2 per cent in the third quarter. But it must be noted that it remains far below the potential.
The second question is what is happening to consumption?
The state of consumption has clearly been one of the most keenly watched given its share in GDP and impact on driving the anticipated acceleration in capacity utilisation levels. Consumption improved to 6.9 per cent in the third quarter, up 100 bps from the previous quarter. In absolute terms, this number went up by Rs 3 lakh crore to Rs 28 lakh crore. With inflation cooling off, improved rural prospects and government’s measures to spur consumption demand, consumption growth should continue to do well.
The other question marks are around the weakness in investments and government spending during the quarter. GFCF or capex growth rate continued to disappoint and fell to 5.7 per cent as against 5.8 per cent in the second quarter with the absolute spending being lower by almost Rs 39,000 crore. In a similar vein, government spending or GFCE was lower by Rs 29,000 crore, reflecting a deterioration sequentially.
Note that in the previous quarter, the slowdown was primarily driven by a decline in consumption and investment. Government spending also acted as a significant drag. The deceleration in consumption growth was largely attributed to weakening urban demand, reflected in various high-frequency indicators. A tempering of leveraged consumption was also evident with the growth of unsecured retail lending slowing due to RBI’s regulatory restrictions on personal loans and credit cards. Moreover, soaring food inflation squeezed household disposable incomes, further dampening consumption. The lingering impact of slow hiring in sectors such as IT and IT-enabled services (IT/ITeS) over the past few quarters compounded these challenges.
Investment growth also witnessed a moderation, as government capital expenditure (capex) spending tracked lower. Meanwhile, private investments remained subdued and high interest rates continued to weigh on business expansion and industrial activity.
From a sectoral perspective, agriculture grew at a roaring 5.6 per cent in the third quarter as against an already robust 4.1 per cent in the second quarter. Manufacturing grew at 5.6 per cent (3.3 per cent in the second quarter) and the trade, hotels, transport, communications segment also grew at a faster clip of 7.6 per cent vs 6.7 per cent in the second quarter. These sectors are large employers and hence their performance augurs well. An interesting thing is that the growth rates in services sub sectors of finance, real estate and professional services as well as in that of public administration and defence remain unchanged at 7.2 per cent and 8.8 per cent respectively.
Talking of the annual numbers and the second advance estimates, real GDP has been estimated to grow by 6.5 per cent in 2024-25, slightly higher than the 6.4 per cent number provided by the first advance estimates in January. It is a tad surprising that GDP has grown by 9.2 per cent in 2023-24 as per the second advance estimates — this is the highest in the previous 12 years except for 2021-22. Further, given that the nominal GDP numbers of 2023-24 and 2024-25 have been revised, the fiscal deficit numbers will undergo a revision too. Note, one will have to keep an eye on yet another set of numbers in May — the provisional GDP estimates — for greater clarity.
The other important set of numbers from the revised estimates for 2023-24 pertain to the savings and investment rates. The rate of gross saving for 2023-24 is estimated at 30.3 per cent as against 30.2 per cent for 2022-23. On the other hand, the rate of GCF to GDP is 31.4 per cent in 2023-24 as against 32.6 per cent in 2022-23 hinting at a slightly wider current account deficit than reported.
Going forward, improvement in sales volume of fast-moving consumer goods, growth in GST collections that have spurted strongly in January, and a bounce back in government expenditure augur well for growth. But given that the growth numbers seem underwhelming compared to the year ago numbers and also as compared to the potential growth rate, another rate cut of 25 basis points from the RBI is in play.
The writer is group chief economist, L&T. Views are personal
