India’s Q4 GDP growth expected to moderate to 6.7%, says rating agency ICRA

Rating agency ICRA Ltd has said it expects India's GDP growth to moderate to a four-quarter low of 6.7% Q4 of 2024. For the full fiscal year it expects GDP growth of 7.8%.

ICRA said it expects growth in gross value added (GVA) to ease to 5.7% in Q4 from 6.5% in the previous quarter owing to lower industrial and services growth, and agricultural GVA to contract for the second straight quarter (by 0.5%) amid weak trends in the rabi output and concerns around yields. GVA is the value of goods and services produced in a country minus input costs, including raw materials. It adjusts GDP by adding subsidies and deducting taxes on products.

ICRA expects the gap between GDP and GVA growth to moderate to about 100 basis points (bps) in Q4 from 185 bps in the previous quarter.

"This is on account of an expected lower expansion in the net indirect taxes in Q4 owing to a narrower dip in the subsidy outgo (-22.8% in Jan-Feb 2024; -53.6% in Q3 FY24)," the rating agency said in a report. 

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"For the full-year FY24, ICRA expects the GDP and GVA growth to print at 7.8% and 7%, respectively, unless the growth for 9M FY2024 (April-December 2024) is revised," it added.

Why were GVA and GDP growth diverging?

Senior government officials said the divergence in GDP and GVA data during Q3 could be attributed to reduced fertiliser subsidy disbursements, suggesting the government hadn't fully disbursed these subsidies, leading to a disparity between GDP and GVA.

In the revised budget estimates for FY24, the government increased the allocation for fertiliser subsidy to ₹1.89 trillion from the ₹1.75 trillion that it budgeted initially.

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Meanwhile, ICRA estimates industrial GVA growth to moderate to 7.9% in Q4 from 10.4% in Q3, led by all four sub-sectors – manufacturing (to +8.0% from +11.6%), electricity (to +7.5% from +9.0%), construction (to +8.5% from +9.5%), and mining and quarrying (to +5.5% from +7.5%).

This, coupled with slower growth in the Index of Industrial Production (IIP), suggests that year-on-year growth in manufacturing GVA is likely to have eased in Q4, with the adverse base (+0.9% in Q4 FY23; -4.8% in Q3 FY23) also likely to weigh on growth, the rating agency added.

Services GVA to ease slightly

Services GVA is expected to ease slightly to 6.2% in Q4 from 7% in Q3 owing to a deceleration in services exports, while investment activities are expected to remain healthy, ICRA said.

“Lower volume growth coupled with diminishing gains from commodity prices dampening the profitability of some of the industrial sectors is expected to dampen India’s GVA growth in Q4 FY2024," said Aditi Nayar, chief economist and head of research & outreach at ICRA.

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"Notwithstanding the overhang of the unfavourable 2023 monsoon rains on agri output, there are some green shoots suggesting that a nascent revival in rural demand may be on the anvil," she added. Urban consumption is expected to have remained robust, albeit uneven, in Q4, Nayar said.

The Indian economy had surged ahead in the December quarter, clocking surprise growth of 8.4% and belying fears of tempering as manufacturing, electricity, and construction put up a robust show. GVA growth during the quarter stood at 6.5%. India reported GDP growth of 7.8% and 7.6%, respectively, during the first two quarters of FY24.