India fastest growing major economy; Q1 GDP growth at 7.8%

India’s gross domestic product (GDP) grew by 7.8% in April-June period, the fastest expansion in four quarters, driven largely by robust growth in services sector, strong consumption demands and favourable base.

GDP at constant 2011-12 prices rose to Rs 40.37 lakh crore in the first quarter of the current financial year as against Rs 37.44 lakh crore recorded in the corresponding period of last year, as per data released by the National Statistical Office (NSO) on Thursday.

The April-June quarter growth is the highest since 13.1% expansion recorded in Q1 of 2022-23. In January-March 2023 quarter GDP had expanded at a rate of 6.1%.

However, the GDP growth numbers in the quarter under review is lower than the Reserve Bank of India’s estimate and analysts’ expectations. In its August monetary policy review, the RBI had pegged Q1 growth at 8%. Most analysts had estimated it to be 8% or more.

ICRA Chief Economist Aditi Nayar, who had pegged at the growth at 8.5%, said the GDP numbers were lower than expected due to poor show of manufacturing sector. “The sharp, broad-based contraction in merchandise exports is likely to have weighed on the performance of manufacturing,” she said.

Manufacturing sector growth slowed to 4.7% in Q1 of the current financial year from 6.1% recorded in the same period last year.

Underlining the lower than expected performance of manufacturing sector, Madhavi Arora, lead economist, Emkay Global Financial Services, said “ideally, the YoY fall in commodity prices should have boosted manufacturing firms’ operating profits and thereby lifted the value added growth of manufacturing sector. Thus, the disappointment on that front was surprising.”

Financial, real estate and professional services posted a robust growth of 12.2% in April-June quarter 8.5% recorded in the same period last year. Construction sector posted a growth of 7.9% during the quarter under review as compared to 16% recorded in the corresponding period of last year.

Reacting on the quarterly data, Chief Economic Adviser V Anantha Nageswaran said the Finance Ministry and the Reserve Bank of India (RBI) are comfortable in holding on to their full-year growth forecast of 6.5%.

“At the moment, the central bank and the Ministry of Finance are quite comfortable with the 6.5 percent real GDP growth outlook for 2023-24,” he said.

On the expectation for the second quarter of the current fiscal, Dharmakirti Joshi, Chief Economist, CRISIL, said, “Growth in the July-September quarter will be moderated by softening consumption as spiking inflation will dent discretionary-spending power.”

“It is heartening to note the impressive GDP growth of 7.8% registered in the first quarter which was buttressed by robust domestic demand and resilient service sector growth even as net exports remained a drag on growth,” said Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII).

The continuing robust performance by investment demand is particularly note-worthy as it augurs well for stimulating demand in other sectors too through its multiplier impact on growth. Going forward, we believe India is firmly on track to remain the fastest growing major economy for the third year in a row this fiscal, he added.

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