India Q2 GDP Preview: Economy in Full Throttle
India is expected to release its GDP growth figure for Q2-2023 (Q1-FY24) on August 31st. The high frequency indicators have set an optimistic tone, and our expectation is that growth will come in at 7.8% y/y during the quarter supported by strong manufacturing sector activity, high capital expenditure, a pickup in investment and a continued uptrend in services sector.
Figure 1: India GDP growth (% y/y)
Source: MOSPI, Continuum Economics
Alongside the Reserve Bank of India, the market and analysts remain upbeat about India’s upcoming GDP number. This positive projection aligns with the IMF’s upward upward revision of India's growth forecast for 2023, which now stands at 6.1%, owing to robust domestic investment driving growth in the fourth quarter of 2022. The IMF's revised projection indicates a strengthening economy despite global uncertainties.
Our view of a strong 7.8% y/y growth stems from the signals provided by the high frequency indications. This includes a strong capital expenditure environment, which was retained during the quarter. Fiscal statistics indicate that the government spend about 27.8% of its total budgeted capex during the quarter. We remind that India’s capital expenditure outlay for FY24 is about INR 10tn. Capital spending by the central government was reportedly up by 59% y/y. Meanwhile, the states which have elections coming up in 2023 and 2024 have retained high capex as well. This has particularly supported growth in the construction sector. Another factor acting as an accelerator during the quarter was manufacturing output. Manufacturing sector output rose 3.6% y/y in June.
Contributions from the services sector have also played a pivotal role in propelling growth. Travel and tourism related services, banking and financial services have all been strong. India’s services exports over the past quarter proved to be resilient suggesting strong IT services growth. Furthermore, the residual benefits of a low base effect stemming from the pandemic's second wave further contribute to the upbeat outlook for the quarter.