Consumption Conundrum: Unpacking India’s Q3FY24 Economic Trends

In the fiscal quarter spanning October to December 2023 (Q3FY24), the Indian economy exhibited notable resilience, registering a robust growth rate of 8.4%, thereby maintaining its status as the world’s fastest-growing major economy. This performance was underpinned by stellar growth in the manufacturing sector at 11.6% and a commendable 9.5% expansion in the construction sector. The public administration, defense, and other services segment contributed significantly with a growth rate of 7.5%. However, the agriculture sector faced a contraction of 0.8%, primarily attributable to adverse weather conditions, including the weakest monsoon rains in five years.

Breaking down the performance further, the services sector, encompassing trade, hotel, transport, communication, and related services, recorded a growth of 6.7%. Although there were signs of recovery in private consumption expenditure, rising from the previous quarter’s 2.4% YoY to 3.5% YoY, the overall consumption growth trajectory remained feeble, falling short of the pre-pandemic average of approximately 7%.

The fiscal health of the nation also came under scrutiny, with India’s fiscal deficit for the first ten months of the fiscal year through January reaching Rs 11.03 lakh crore, constituting 63.6% of the annual estimates, as per government data reported on February 27.

Delving into economic indicators beyond the Gross Domestic Product (GDP), the Gross Value Added (GVA), which gauges economic performance from the supply side by considering GDP excluding indirect taxes and subsidies, grew at a moderated rate of 6.5% on an annual basis in Q3FY24. Notably, the gap between GDP and GVA widened to 190 basis points, deviating from the average of 20 basis points observed in the last eight quarters. Economists attribute this disparity to the surge in tax collections and a reduction in government subsidies during the quarter, anticipating a normalization of this gap in the ensuing quarters.

During its recent monetary policy meeting, the central bank voiced concerns about mounting inflation and its potential repercussions for the growth outlook. The outlook for rural demand appears nuanced, marked by uncertainties related to agricultural prospects and elevated prices of essential food items. Government-initiated relief measures, including the reduction in LPG prices and the extension of the Prime Minister Garib Kalyan Yojana until 2029, are anticipated to provide a degree of relief and support.

Despite the positive strides, the economic landscape signals a complex interplay of factors that will likely influence India’s growth trajectory in the quarters to come. The moderation in GVA growth, coupled with concerns over fiscal deficits and consumption patterns, adds a layer of intricacy to the overall economic narrative.

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