India’s economy exceeds forecasts, achieving a robust 7.6% growth in Q2.

India continues to hold its position as the world’s fastest-growing major economy, registering an impressive 7.6% GDP growth in the July-September quarter. This exceeded projections, including the Reserve Bank of India’s estimate of 6.5%. Notably, this growth surpasses China’s 4.9% in the same period.

Prime Minister Narendra Modi expressed confidence, stating, “The GDP growth numbers for Q2 display the resilience and strength of the Indian economy.” The unexpected growth was primarily driven by a surge in the manufacturing sector, reaching a nine-quarter high of 13.9%. However, private consumption and agriculture demand remained subdued.

Finance Minister acknowledged the surprise growth, stating, “Real GDP growth has surprised on the upside.” Chief Economic Advisor V Anantha Nageswaran expects the growth momentum to continue in the December quarter, projecting a comfortable 6.5% growth for the fiscal year.

Government spending played a significant role, rising by 12.4%, while private consumption slowed to 3.1%. Some analysts anticipate a moderation in growth in the second half of the fiscal year, despite the boost to full-year GDP numbers. The services sector and agriculture saw tepid growth, with agriculture experiencing its slowest growth in 18 quarters.

On the demand side, gross fixed capital formation and government final consumption expenditure witnessed double-digit growth, while private final consumption expenditure recorded muted growth. Exports grew by 4.3%, and key infrastructure sectors showed a notable jump in output.

Looking ahead, there are concerns about the potential slowdown in government capex due to impending Parliamentary Elections, which could impact growth in the second half of the fiscal year. Despite the higher-than-forecast outcome for Q2, some analysts are revising their FY2024 growth forecast upwards to 6.2% from 6.0%. The government’s fiscal deficit at the end of October stood at 45% of the full-year budget estimate. In the upcoming monetary policy meeting, analysts expect the RBI to consider the stronger growth momentum but anticipate that any rate hike is unlikely in the near term.