Strong momentum, lower subsidies drive highest GDP growth in six quarters in Q3: RBI bulletin

The 8.4% economic growth clocked by India in October-December 2023, the highest in the last six quarters, was powered by “strong momentum, robust indirect taxes, and lower subsidies”, the Reserve Bank of India (RBI) said in its monthly bulletin released on March 19.

The Q3 numbers, followed by the momentum seen in Q4 so far, indicates that the full-year gross domestic product (GDP) growth forecast of 7.6% for FY24 is likely to be surpassed, the RBI said. The National Statistics Office (NSO) had issued the 7.6% forecast in its second advance estimates released in February.

“Our nowcast of real GDP growth for January-March 2024 seen in conjunction with high-frequency indicators for the fourth quarter, suggests that the NSO’s estimate for the full year 2023-24 will be exceeded and a rate closer to 8% may be clocked,” the central bank said.

The overall level of business confidence points to robust optimism about near-term prospects, the bulletin added.

Read more: India Q3 GDP growth: Indian economy grows at 8.4% in October-December quarter

Growth drivers

Aggregate demand in the third quarter of FY24 was investment-driven, with some indications of a revival of the private capex cycle, the RBI pointed out, adding that capacity utilisation in several sectors has reached a point where there has to be new investments.

Moving ahead, India’s “high visibility of structural demand and healthier corporate and bank balance sheets” are likely to emerge as the “galvanising forces” for growth, it said.

Market research indicates that the domestic fast moving consumer goods (FMCG) sector may experience moderate growth over the next six months, whereas the demand outlook for premium consumer businesses is robust and the growth rhythm is expected to persist into the medium-term, the RBI said.

“Small town opportunities are leading to growth of business across lifestyle segments, with companies that entered these markets enjoying the fruits of being first movers,” it added.

“Global economy losing steam”

“The global economy is losing steam, with real GDP growth slowing in some of the most resilient economies, flattening out and even mildly contracting in others,” the bulletin stated.

While business activity is showing some slender improvement in both advanced and emerging economies, external demand remains subdued amidst country-specific weaknesses, including in the property sector, and spiralling public debt, it added. “Labour markets remain resilient but are showing signs of easing, especially in terms of wage increases. In some emerging market economies, unemployment rates are edging up.”

According to the RBI, the global economic outlook is beset by geopolitical tensions, unsettled financial conditions, and stubborn inflation in major economies.

Food price pressures

The RBI’s tightening of the monetary policy, in the aftermath of the post-COVID-19 period, has brought inflation back into the central bank’s upper-level tolerance band of 6%. The rate of inflation, however, still remains above the medium-term target of 4%.

“Even as inflation is on the ebb with broad-based softening of core inflation, the repetitive incidence of short amplitude food price pressures deters a swifter fall in headline inflation towards the target of 4%,” the bulletin stated.

In February 2024, the inflation rate came in at 5.09%, even as the core inflation eased to 3.34%. The food and beverage inflation remained high at 7.08%, primarily driven by the sharp vegetable inflation which stood at 30.25%.