India's Q2 GDP likely grew 7%, exceeding MPC's 6.5% forecast
India's economy likely grew 7% in the second quarter (Q2) of the ongoing financial year, research firm ICRA noted on Tuesday. This figure surpassed the Reserve Bank of India's (RBI) rate-setting panel Monetary Policy Committee's (MPC) estimation of 6.5%. ICRA's analysis indicated a moderation in India's GDP growth to 7% in Q2 following a robust 7.8% growth in the previous quarter.
Investment activity remains robust despite slowdown
ICRA revealed that investment activity in India remained robust in Q2, with seven out of 11 investment-related indicators demonstrating improved year-on-year growth compared to Q1. Although the YoY growth of four indicators weakened in Q2 FY24 relative to Q1, all experienced a double-digit increase, including commercial vehicle registrations (+13.5%), cement production (+10.2%), states' capital outlay and net lending (+33.5%), and Indian government's capex (+26.4%). The Centre's gross capital expenditure rose by 26.4% annually to Rs. 2.1 lakh crore in Q2.
Construction activity momentum maintained amid sub-par rainfall
Despite below-average rainfall, construction activity momentum stayed strong in Q2, according to ICRA's report. The research firm noted that fewer disruptions occurred during the quarter compared to what was typically observed in the past due to erratic monsoons. However, with a deceleration in national highway construction, the Gross Value Added (GVA) growth of this sub-sector likely moderated to 7.0% in Q2 FY24 from 7.9% in Q1 FY24.
Lower GDP growth expected in H2 FY24
Aditi Nayar, ICRA's Chief Economist expressed concerns about the future economic landscape. She said several factors such as erratic rainfall, converging differences in commodity prices, a potential slowdown in government capex, subdued external demand, and the collective impact of monetary tightening are likely to translate into lower GDP growth in H2 FY24. "As a result, we maintain our FY24 GDP growth estimate at 6.0%, lower than the MPC's projection of 6.5% for the fiscal," she said.
