Even as a slew of projections indicate moderation in India’s GDP growth in the range of 6.3 per cent in the fourth quarter ended 31 March, 2024, from 8.4 per cent recorded in the third quarter this fiscal, ICRA has projected the year-on-year (YoY) expansion of the GDP to moderate to a four-quarter low 6.7 per cent in Q4 FY2024 from 8.4 per cent in Q3 FY2024. Further, the growth in the gross value added (GVA) is estimated to ease to 5.7 per cent in Q4 FY2024 from 6.5 per cent in Q3 FY2024, driven by the industrial easing to plus 7.9 per cent growth from plus 10.4 per cent and services (to plus 6.2 per cent from plus 7.0 per cent sectors.
The agricultural GVA is expected to contract for the second straight quarter in Q4 FY2024 by 0.5 per cent at a pace similar to Q3 which was -0.8 per cent amid weak trends in the rabi output (barring wheat) and concerns related to yields. Further, the gap between the GDP and the GVA growth is likely to moderate to 100 basis points (bps) in Q4 FY2024 from the particularly high 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 to the tune of -22.8 per cent in January-February 2024 and -53.6 per cent in Q3 FY2024. For the full-year FY2024, ICRA expects the GDP and GVA growth to print at 7.8 per cent and 7.0 per cent, respectively, unless the growth for 9M FY2024 is revised. Aditi Nayar, Chief Economist, ICRA notes that 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.
Nayar, however, is of the view that 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. “The domestic retail tractor volumes reverted to a YoY expansion of 7.7% in Q4 FY2024, after contracting by 4.0 per cent in Q3 FY2024.
Moreover, some listed FMCG players pointed to a recovery in the rural economy, particularly in the non-food segment, in Q4 FY2024. This can be partly attributed to the uptick in demand during the marriage season as well as a low base. Additionally, urban consumption is expected to have remained robust, albeit uneven in Q4 FY2024,” added Nayar.
The rating agency estimates the industrial GVA growth to record a broad-based moderation to 7.9 per cent in Q4 FY2024 from 10.4 per cent in Q3 FY2024, led by all four sub-sectors, namely, manufacturing (to plus 8.0 per cent from plus 11.6 per cent), electricity (to plus 7.5 per cent from plus 9.0 per cent), construction to plus 8.5 per cent from plus 9.5 per cent and mining/quarrying (to plus 5.5 per cent from plus 7.5 per cent.
As per the quarterly results of a relatively small sample of listed manufacturing companies, the profit margins eased slightly in Q4 FY2024 vis-a-vis Q3, partly owing to a narrower deflation in input costs as reflected in the WPI-industrial raw materials of 1.9 per cent in Q4 versus -2.8 per cent in Q3. This, coupled with the lower growth in manufacturing IIP volumes (to plus 4.5 per cent from plus 5.4 per cent), suggests that the yoy growth in manufacturing GVA is likely to have eased in Q4 FY2024, with the adverse base (plus 0.9 per cent in Q4 FY2023 and -4.8 per cent in Q3 FY2023 also likely to weigh on growth.
The rating agency estimates the yoy expansion in the services GVA to ease slightly to 6.2 per cent in Q4 FY2024 from 7.0 per cent in Q3 FY2024. The yoy growth in India’s services exports decelerated to 4.2 per cent in Q4 FY2024 from 5.2 per cent in Q3 FY2024.
Moreover, the performance of certain indicators saw a deterioration in Q4 FY2024, relative to Q3 FY2024, such as ports cargo traffic (to plus 3.1 per cent from +10.1 per cent), GST e-way bills (to plus 16.3 per cent from +17.1 per cent), ATF consumption (to plus 10.0 per cent from plus 11.0 per cent, domestic airlines’ passenger traffic (to plus 4.4 per cent from plus 9.3 per cent and CV sales (to 3.8 per cent from plus 3.2 per cent.
Investment activity was healthy in Q4 FY2024 but some investment-related indicators moderated in Q4 FY2024 vis-à-vis Q3, along with an implicit slowdown in new project proposals in February-March 2024, relative to January 2024.