India’s Q2 GDP growth seen at 6.7% on strong services play

New Delhi: The Indian economy likely expected 6.7% in the July-September quarter, according to a median forecast of 10 economists polled by ET, boosted by a strong performance by the services sector.

The Reserve Bank of India (RBI) has forecast 6.5% growth in the quarter.

Robust manufacturing and construction activity also likely contributed to growth in the second quarter, economists said. Forecasts ranged from 6.2% to 7%. The economy grew 7.8% in the April-June quarter and 6.2% in the July-September quarter last fiscal.

“We expect GDP growth to moderate sequentially to 7% in the second quarter of FY24, partly on a less supportive base, while exceeding the MPC‘s last estimate of 6.5%,” said ICRA chief economist Aditi Nayar, giving the highest estimate in the survey.

The official national accounts data for the second quarter of the current fiscal will be released at the end of November.

“The services sector is expected to power growth in Q2 as reflected in strong services PMI and passenger traffic numbers while construction and manufacturing are also expected to put up a good show,” said Rajani Sinha, chief economist, CareEdge, penciling in 6.5% growth in Q2 of FY24.S&P Global’s Services PMI averaged 61.1 in the July-September quarter, accelerating from 60.6 in the preceding three months, data released last month showed, indicating services activity strengthened in the quarter. A PMI value of over 50 denotes expansion.

“Service sector activity likely stayed buoyant in 2Q, besides manufacturing growth, as signalled by stronger high-frequency prints including PMIs, capacity utilisation, credit growth, infrastructure indices etc,” said Radhika Rao, senior economist, DBS.

Manufacturing activity also gained pace in the second quarter of FY24, as firms reported better export demand despite a slowdown in global growth, according to results of a FICCI survey released Monday.

Higher investment by states and domestic consumption also had a role to play in driving growth.

“India continues to outperform its global peers on economic growth, and in Q2FY24, despite the multiple external headwinds, economic activity was underpinned by domestic consumption, state investment, and buoyant consumer sentiment,” said Rahul Bajoria, MD and head of EM Asia (ex-China) economics, Barclays.

Experts contend that urban consumption is likely to have done better than rural consumption, which showed some improvement in the quarter.

India’s packaged consumer goods grew 9% by value and 8.6% by volume in the September quarter from the year earlier, aided by higher spending in rural India for both essentials and discretionary products, according to researcher NielsenIQ, ET reported on November 8.

It attributed the growth to cooling inflation, a decline in unemployment, and lower LPG prices.

FY24 Outlook
While economists were more optimistic about Q2 growth than the RBI’s Monetary Policy Committee (MPC), for fiscal 2024 they have a lower 6.3% growth forecast compared with the central bank’s 6.5% estimate in the last review on October 6.

Some have even pared their full-year estimate.

“For the full year (FY24), we have lowered our GDP growth projection to 6.3% from 6.5% earlier due to the expected hit to Kharif agriculture production and its negative impact on rural demand,” said Sinha from CareEdge.

Growth in subsequent quarters would depend on real wage increases and inflation risks remaining contained, they said.

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