Moderation in industrial growth, agri likely to drag down GDP growth in Q3

Meanwhile, services which are the major contributor to the Indian economy display an improvement in Q3, led by trade, hotels, transport and communication services

The Indian economy is likely to report a slowdown in the third quarter (October-December) of FY24 owing to deceleration in industrial growth, agricultural output, and consumption, an analysis of high-frequency indicators shows.
 

Analysts say the gross domestic product (GDP) figure in the December quarter of FY24 is expected to remain closer to 6.5 per cent, registering a sharp slowdown from the 7.6 per cent recorded in the second quarter (Q2) this financial year. 
 

The Reserve Bank of India (RBI) expects growth to have been 6.5 per cent in the third quarter. The official GDP data for Q3, along with the second advance estimates for FY24 and first revised estimates for FY23, is scheduled to be released on Thursday.
 

Indicators like the index of industrial production, electricity demand, steel, and cement, which can be used as a proxy for industrial sector growth, posted sequentially lower growth of 5.9 per cent, 10.2 per cent, 14.5 per cent, and 4.9 per cent, respectively in the third quarter. Similarly, the purchasing managers’ index (PMI) for manufacturing dipped to 56.8 in the December quarter as against 57.9 in the preceding quarter.
 

“The anticipated deterioration in industrial growth in Q3FY24 is partly attributable to an adverse base effect and a deceleration in volume expansion, even as continued deflation in commodity prices has kept the profitability of some sectors favourable,” said ICRA Ratings Chief Economist Aditi Nayar. 
 

Corporate India reported high double-digit growth in net profit for the fourth consecutive quarter in Q3FY24, as higher margins more than compensated for the slowdown in revenue, which grew in single digits for the third consecutive quarter.
 

Similarly, growth in agriculture is expected to moderate from 4.7 per cent in the December quarter of FY23.
 

“The first advance estimates for kharif crops noted that the food grain production will be lower this year than last year. However, for the next quarter some recovery is expected in agricultural growth, given robust rabi acreage,” said Jahanavi Prabhakar, economist, Bank of Baroda. 
 

Consumption in rural areas slowed during the December quarter as reflected in sequential moderation registered in indicators like domestic tractor sales (-7.2 per cent) and two-wheeler sales (10.3 per cent). 
 

Similarly, urban consumption remained sluggish during the quarter as indicators like passenger vehicle sales (8 per cent) and auto retail sales (8.2 per cent) showed sequential moderation along with a decline in aviation traffic (10.8 per cent) and personal loans (18.1 per cent).
 

“Consumption and luxury expenditure have propelled the economy in the last quarter. In Q3, apart from the festive rush, the consumption story has largely remained tepid, with growth in consumer non-durables falling to a four-quarter low and personal credit also moderating,” said Paras Jasrai, senior economic analyst, India Ratings.
 

Meanwhile, services, the major contributor to the Indian economy, displayed an improvement in Q3, led by trade, hotels, transport, and communication services. 
 

“ICRA estimates the services GVA (gross value added) growth to rise in Q3. Several high-frequency indicators related to this sub-sector like air cargo traffic, ports cargo traffic, goods and services tax e-way bills, railway freight, services exports, and the number of telephone subscribers displayed an improvement in their Y-o-Y growth in the third quarter relative to the previous quarter,” said Nayar.