Q2 Growth is Boosted by Tailwinds, but there are Several Headwinds Aheads


According to economist Gaura Sengupta of IDFC FIRST Bank, the manufacturing sector benefited more from the deflator’s higher weight of WPI inflation than the services sector, which was more heavily weighted by Consumer Price Index (CPI) inflation.

Beyond the headline figure, the impressive GDP figure for the second quarter offers a mixed bag of opportunities, including some possible future headwinds as well as unforeseen tailwinds that helped growth during the three-month period.

A significant increase in construction activity primarily due to government-led capital expenditures, improved corporate profitability brought about by the decline in input prices, and certain deflator-related accounting issues were some of the factors that most economists understated in their GDP estimates for the July–September quarter. The outcome was an astounding 7.6% growth rate, which led most analysts to raise their growth prediction for FY24 while highlighting the noticeable slowdown in private consumption and worries about a slowdown in the second half of the fiscal year (October–March).

The GDP estimates for the second quarter, which ran from July to September, were generally between 6.7% and 7%, with some economists placing it even higher. Several economists The Indian Express spoke with following the release of the GDP data acknowledged that the growth in manufacturing and construction for the second quarter was substantially higher than anticipated. Economists currently predict a growth rate of 6.2–7.0 percent for FY24. For the fiscal year 2023–2024, the government and the Reserve Bank of India (RBI) have both forecast a growth rate of 6.5%.

“Manufacturing growth has exceeded expectations, as evidenced by Q2’s higher corporate margins. Soumya Kanti Ghosh, the group chief economist at State Bank of India, stated, “We are now projecting growth of seven percent plus in FY24, with six to six and a half percent growth in the second half of the year.” India’s manufacturing sector expanded at a strong rate of 13.9%, up from 4.7% in Q1FY24 and (-)3.8% in Q2FY23.

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