India's Q2 GDP growth beats estimates at 7.6%

India’s economy grew 7.6% in the second quarter (July-September) of the year, exceeding analyst expectations comfortably on the back of higher government spending and a strong performance by the manufacturing and construction sectors. The number means India’s economy has expanded at 7.7% in the first half of the year.

- Roshan Kishore and Rajeev Jayaswal

“The GDP growth numbers for Q2 display the resilience and strength of the Indian economy in the midst of such testing times globally. We are committed to ensuring fast-paced growth to create more opportunities, rapid eradication of poverty and improving “Ease of Living” for our people,” Prime Minister Narendra Modi said on X.

Analysts said the only question now, as far as the economy is concerned, is whether economic momentum has already peaked or will continue in the second half of the fiscal year?

While independent experts tend to converge on the former, the government is buoyant about the economy’s prospects for the rest of the year as well, which will end just before the 2024 general elections. To be sure, some of the momentum in the GDP numbers could be on account of technical factors such as a favourable inflation adjustment. However, the fact remains that the numbers are in line with broadly favourable message from other high-frequency indicators.

The latest GDP data has surpassed the projections by the Reserve Bank of India’s Monetary Policy Committee, which had projected a 6.5% GDP growth in 2023-24, with quarterly growth numbers of 6.5%, 6% and 5.7% in the quarters ending September 2023, December 2023 and March 2024. It is worth reiterating that MPC had overestimated June quarter’s GDP growth by 20 basis points in its August resolution.

What explains the unexpected economic performance in the latest GDP numbers?