India's GDP Growth for Jan-March Quarter Hits 7.8%, Surpassing Expectations: JP Morgan

GDP Performance Surpasses Expectations

India's gross domestic product (GDP) for the January to March quarter recorded an impressive 7.8% growth, surpassing the anticipated 7%, according to JP Morgan's "India’s Quarterly GDP: Groundhog Day" report. 

This robust performance echoes the previous quarter's trends, largely driven by a significant surge in Net Indirect Taxes (NIT), which soared 22% year-on-year due to reduced subsidies, thus lifting the GDP.

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GVA Growth Slows Down

In contrast to the GDP, Gross Value Added (GVA)—a more accurate measure of underlying growth—showed slower expansion. The GVA for the January to March quarter stood at 6.3%, down from 6.8% in the previous quarter and 8.3% three quarters ago. 

This deceleration is partly attributed to weak agricultural production in the latter half of the period. Even Core GVA (excluding agriculture and government spending) reflected a sluggish private sector business cycle.

Annual Growth Rates

For the fiscal year 2023-24, India's GDP grew by 8.2%, primarily fueled by the NIT surge. However, GVA growth was slightly lower at 7.2%, highlighting a discrepancy primarily due to the withdrawal of pandemic-induced subsidies and a softening in commodity prices. 

Historically, the gap between GDP and GVA is minimal, typically around 0.3 percentage points, indicating a return to normal business conditions is expected in the current fiscal year.

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Sectoral Contributions to GVA

Construction and Infrastructure: GVA growth in the production sector was driven by construction, which grew by 8.7%. This was bolstered by real estate development and government infrastructure initiatives, though growth decelerated slightly as elections approached.

Financial Sector: The financial sector contributed significantly with a 7.6% growth, driven by robust credit expansion and sound balance sheets.

Manufacturing: Manufacturing growth slowed to 8.9% from the previous quarter's 11% and 14% in the quarter before that. This deceleration is linked to the diminishing benefits of favourable terms-of-trade and partial normalisation of deflator issues.

RBI's Monetary Policy Outlook

Given the strong 8% GDP figure and uncertainties surrounding the monsoon and global economic conditions, the Reserve Bank of India (RBI) is expected to maintain its current policy stance during its June review. Major decisions will likely be deferred to the August meeting when these uncertainties are expected to be clearer.

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Despite the impressive GDP growth of 7.8% in the January to March quarter, driven by a surge in Net Indirect Taxes, the underlying GVA growth tells a different story, reflecting slower expansion. Sectoral contributions highlight robust construction and financial sectors, yet manufacturing and private consumption show signs of deceleration. 

With the RBI expected to hold off on major policy changes until more economic uncertainties are resolved, it remains crucial for India to push forward with reforms to sustain long-term growth and recover its pre-pandemic trajectory.

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