India’s GDP Growth in Q3 2023-24

  • March 2, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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India’s GDP Growth in Q3 2023-24

Subject: Economy

Section: National Income

  1. GDP Growth Rate:
    • Surpassed expectations to rise to a six-quarter high of 8.4% in the third quarter (October-December) of 2023-24.
    • This exceeded the 5% estimate for Q3 by the Reserve Bank of India (RBI) and other economists.
  2. Impact on Full-Year Estimate:
    • Q3 GDP pushed the full-year estimate to 7.6% in the second advance estimates.
    • Initial estimate was 3% released in January.
  3. Sectoral Growth:
    • Improvement in sectors such as:
      • Manufacturing
      • Mining
      • Construction
      • Trade
      • Hotels
      • Transport
      • Communication
      • Broadcasting services
    • Agriculture sector, however, recorded a contraction in Q3.
  4. Divergence in Growth Rates:
    • Divergence between GDP and Gross Value Added (GVA) growth rates.
    • GDP for Q3 was 4%, while GVA growth was lower at 6.5%.
    • GVA measures national income from the output side, excluding product or indirect taxes.
  5. Reasons Behind Surge in GDP:
    • Strong growth in sectors except agriculture.
    • Manufacturing grew at 6%.
    • Construction posted 5% growth.
    • Services, such as trade, hotels, transport, communication, grew at 7%.
  6. Investment Support:
    • Rise in investments supported GDP growth.
    • Revival in capex cycle due to:
      • Turn in real estate cycle
      • Industry utilization back at 2019 levels.
  1. Consumption Expenditure:
    • Slowdown in private final consumption expenditure.
    • FY23 growth levels at a two-decade low (excluding pandemic year).
    • Q3 private final consumption expenditure rose by 5% year-on-year.
  2. Growth Revisions:
    • Revisions made to growth rates of previous financial years.
    • Q3 growth rate revised down to 3% for October-December 2022-23.
  3. Divergence Between GVA and GDP:
    • Sharp rise in net taxes and fall in subsidies.
    • Widening difference to 190 basis points in Q3.
  4. Government’s View:
    • Divergence due to fall in subsidies.
    • Urea subsidy 25% lower than the year-ago period.
  5. Growth Expectations and Concerns:
    • Expectation for broad-based improvement in consumption growth and private investments.
    • Concerns about slowing profit growth and rising input costs.
    • GDP deflator growth expected to impact real GDP growth in FY25.
  6. Future Outlook:
    • Growth momentum expected to moderate.
    • Urban demand could moderate as wage growth slows.
    • Government capital expenditure may slow in Q4.

India’s GDP growth in Q3 2023-24 reflects a mixed picture with strong performances in certain sectors, a slowdown in consumption, and a divergence between GDP and GVA growth rates. The outlook for future growth hinges on factors such as consumption demand, private investments, and government spending.

Understanding GDP and GVA in India’s Economic Growth

What is GDP?

  • Gross Domestic Product (GDP) measures the monetary value of all final goods and services produced within a country’s borders in a specific time period.
  • It includes consumption, government spending, investments, and net exports.

Components of GDP:

  • Private Final Consumption Expenditure (PFCE): Money spent by individuals on final goods and services.
  • Government Final Consumption Expenditure (GFCE): Government spending on goods and services.
  • Gross Fixed Capital Expenditure (Gross Investment): Investments in capital assets to boost productivity.
  • Net Exports (NX): Difference between exports and imports.

Calculation:

GDP = PFCE + Gross Investment + GFCE + (Exports – Imports)

What is GVA?

  • Gross Value Added (GVA) calculates the value of goods and services produced in an economy, minus the cost of inputs and raw materials.
  • It provides insights into the contribution of each sector to the economy.

GVA Calculation:

GVA = Total Output Value – Cost of Intermediary Inputs

Relationship Between GDP and GVA

  • Derived Relationship:
    • GDP is derived from GVA along with taxes earned by the government and minus subsidies provided.
    • GDP = GVA + Taxes – Subsidies
  • Usage:
    • GDP is more commonly used for analyzing annual economic growth and for comparisons between countries or over time.
    • GVA helps understand the performance of individual sectors within the economy.

Recent Indian Economic Growth Data

  • Q2 FY23 Growth:
    • India’s GDP grew by 6.3% and GVA by 5.6%.
    • India maintained its status as the fastest-growing major economy, outpacing China.

Significance of GDP and GVA

  • Economic Indicators:
    • GDP and GVA serve as crucial indicators of an economy’s health and performance.
    • They reflect overall economic activity, sector-wise contributions, and growth trends.
    • Government policies and decisions often rely on GDP and GVA data.

Conclusion

Understanding GDP and GVA is essential for comprehending India’s economic growth story. The recent growth rates reflect a positive trajectory, with implications for policy, investment, and sectoral development. As India aims for sustained growth, these indicators will continue to guide economic strategies and decisions, ensuring a path of prosperity and progress.

economy India's GDP Growth in Q3 2023-24