At 7.6 percent, Indian growth delivers another strong quarter

Maruti Suzuki plant, Manesar. Image: Madhu Kapparath

India’s economic expansion continues apace in the second quarter of FY24 with GDP growing at 7.6 percent, according to data released by the National Statistical Office. This outpaced the Reserve Bank of India (RBI) and consensus analyst expectations taken a few days before the numbers were released. 

The rise in GDP was led by manufacturing and construction, which grew at 13.9 percent and 13.3 percent respectively. The growth in manufacturing has come despite slower growth globally that has caused the growth in Indian exports to stagnate. Several areas such as mobile phones and electronic manufacturing have benefited from the introduction of production linked incentive schemes.

The RBI in its October meeting had pegged growth at 6.5 percent and said that high frequency indicators were pointing to a strong pace of expansion.

With growth showing no signs of slowing down, the central bank can shift its focus back to inflation. “The good part is that core inflation is relatively low even though growth is on the higher side,” says Suvodeep Rakshit, senior economist at Kotak Mahindra Bank. He believes that going forward the RBI will be more focussed on inflation and getting it back to the 4 percent target. If and when that is achieved, it can move to adjusting rates along with the global cycle.

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One worrying trend was the weakness in consumption. The growth in private consumption expenditure stood at 3.1 percent and points to a weakness in spending. Listed consumer companies have reported dismal volume growth for the last many quarters and this trend is likely to persist. On the other hand, growth in luxury items is strong. 

In October, the RBI realised that the consumer is increasingly taking on more debt to fund consumption and has increased the risk weighs on lending for personal consumption. This could put a further lid on growth in consumption. Expect more regulatory action on this front.