India’s GDP Growth To Dip to a 4-quarter Low of 6.7% in Q4 FY23-24 from 8.4% in Q3: ICRA
Moneylife Digital Team 21 May 2024
The year-on-year (y-o-y) expansion of India's gross domestic product (GDP) is likely to moderate to a four-quarter low of 6.7% in the fourth quarter (Q4) of FY23-24 from 8.4% in Q3FY23-24. Further, the growth in the gross value added (GVA) is estimated to ease to 5.7% in Q4 from 6.5% in Q3FY23-24, driven by the industrial (to +7.9% from +10.4%) and services (to +6.2% from +7.0%) sectors. The agricultural GVA is expected to contract for the second straight quarter in Q4 FY23-24 (-0.5%) at a pace similar to Q3 (-0.8%), amid weak trends in the rabi output (barring wheat) and concerns related to yields, says a research note.
In the report, rating agency ICRA says the gap between GDP and GVA growth is likely to moderate to about 100bps (basis points) in  Q4FY23-24 from the particularly high 185bps in the previous quarter. This, it says, is on account of an expected lower expansion in the net indirect taxes in Q4 due to a narrower dip in the subsidy outgo at -22.8% in January and February 2024 and -53.6% in Q3FY23-24. 
For the full-year FY23-24, ICRA expects the GDP and GVA growth to print at 7.8% and 7.0%, respectively, unless the growth for the first nine months (9M) of FY23-24 is revised.
According to Aditi Nayar, chief economist and head for research and outreach at ICRA, lower volume growth coupled with diminishing gains from commodity prices dampening the profitability of some of the industrial sectors is expected to dampen India's GVA growth in Q4FY23-24.
"Notwithstanding the overhang of the unfavourable 2023 monsoon rains on agri output, there are some green shoots suggesting that a nascent revival in rural demand may be on the anvil. The domestic retail tractor volumes reverted to a YoY expansion of 7.7% in Q4FY23-24 after contracting by 4.0% in Q3FY23-24. Moreover, some listed FMCG players pointed to a recovery in the rural economy, particularly in the non-food segment, in Q4FY23-24. This can be partly attributed to the uptick in demand during the marriage season as well as a low base. Additionally, urban consumption is expected to have remained robust, albeit uneven, in Q4FY23-24," she added.
ICRA estimates the industrial GVA growth to record a broad-based moderation to 7.9% in Q4FY23-24 from 10.4% in Q3FY23-24, led by all four sub-sectors, namely, manufacturing to 8.0% from 11.6%, electricity to 7.5% from 9.0%, construction to 8.5% from 9.5% and mining and quarrying to 5.5% from 7.5%. 
As per the quarterly results of a relatively small sample of listed manufacturing companies, the rating agency says the profit margins eased slightly in Q4 FY23-24 vis-a-vis Q3, partly owing to a narrower deflation in input costs as reflected in the WPI-industrial raw materials at -1.9% in Q4 against -2.8% in Q3. 
"This, coupled with the lower growth in manufacturing IIP volumes to 4.5% from 5.4%, suggests that the YoY growth in manufacturing GVA is likely to have eased in Q4 FY23-24, with the adverse base of 0.9% in Q4 FY22-23 and -4.8% in Q3 FY22-23, also likely to weigh on growth," it says. 
ICRA estimates the y-o-y expansion in the services GVA to ease slightly to 6.2% in Q4 FY23-24 from 7.0% in Q3 FY23-24. 
It says, "The YoY growth in India's services exports decelerated to 4.2% in Q4 FY23-24 from 5.2% in Q3 FY23-24. Moreover, the performance of certain indicators saw a deterioration in Q4 FY23-24, relative to Q3 FY23-24, such as ports cargo traffic to 3.1% from 10.1%, GST e-way bills to 16.3% from 17.1%, ATF consumption to 10.0% from 11.0%) domestic airlines' passenger traffic to 4.4% from 9.3% and commercial vehicle (CV) sales to -3.8% from 3.2%."
According to the report, investment activity was healthy in Q4 FY23-24 amidst a mixed trend, displayed by various investment-related lead indicators. There was a surge in new project announcements to the second-highest quarterly level owing to the state investor meets held in January 2024, as well as an appreciable increase in completions of both private and government-led projects, it says.
However, ICRA says some investment-related indicators moderated in Q4FY23-24 compared with the previous quarter (Q3), along with an implicit slowdown in new project proposals in February-March 2024, relative to January 2024. This reflects some transient caution amid the onset of the model code of conduct (MCC) in March 2024 and the uncertainty due to the parliamentary elections, it added.
The y-o-y growth of the capital outlay and net lending of 24 state governments, except Arunachal Pradesh, Jharkhand, Manipur and Goa, eased to 3.5% in Q4FY23-24 from 11.5% in Q3FY23-24, partly attributed to the base effect. 
"While the Indian government's capital expenditure expanded by 31.6% YoY to Rs1.3trn (trillion) in January-February 2024, it may have eased in March 2024 on a YoY basis amidst the MCC," ICRA added.
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