• UGI USER
  • Dec 01, 2023
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GDP GROWTH SURPASSES RBI FORECAST IN Q2

Why in the News? 

  • India’s Gross Domestic Product (GDP) shows remarkable growth at 7.6% in Q2 of 2023, exceeding the Reserve Bank of India’s (RBI) projected uptick of 6.5%.
  • Despite a slowdown in the farm and services sectors and consumer spending, the GDP growth remains robust.

 Sector-wise Performance

  • Gross Value Added (GVA) in the economy eases slightly to 7.4% in Q2, with notable declines in the farm sector (1.2%) and services sectors like trade, hotels, and transport (4.3%).
  • Construction sector plays a pivotal role, contributing to a provisional7% GDP growth in the first half of 2023-24, with a 10.5% rise.

Outlook for the Second Half

  • Economists anticipate a moderation in growth in the second half of the year, but the strong first-half performance is expected to uplift the full-year numbers by 0.1% to 0.2%.
  • The RBI and government project a 6.5% GDP growth for the year, with the annual growth estimated at 6.7% according to EY India’s chief policy adviser.

Factors Driving Growth

  • The buoyant first-half growth is attributed to government spending, particularly front-loaded capital expenditure (capex).
  • Manufacturing GVA records the fastest uptick in nine quarters, rising by 13.9%, while mining GVA and construction GVA also show significant increases.
  • Government capex contributes to a 30% investment rate, the highest for any second quarter since 2014-15, according to ICRA chief economist Aditi Nayar.

Consumer Spending and Investment Dynamics

  • Private Final Consumption Expenditure (PFCE) sees a decline, reflecting weakness in rural demand, with PFCE growth halving to 3.1% in Q2.
  • Government capex plays a crucial role in lifting the investment rate, showcasing positive trends in the economy.

The GDP growth, driven by robust sectors like construction and manufacturing, sets an optimistic tone for India’s economic performance in the current fiscal year.