India’s GDP growth likely moderated to 6-6.8% in Q3: Analysts

New Delhi: India’s economic growth is likely to moderate in the range of 6 to 6.8 per cent in the third quarter of the current financial year, sharply lower than 7.6 per cent expansion recorded in the previous quarter, due to slowdown in the industrial sector and moderation in government expenditure, analysts said.

State Bank of India’s Economic Research Department in a note on Wednesday pegged the Q3 growth projection at 6.8 per cent. However, it noted that the figure could reach 7 per cent in case of any downward revisions in the Q3 of 2022-23 data.

Other research agencies and analysts have pegged the number even lower. Ratings agency ICRA has projected that the Q3 growth figure will be at 6%. According to Economics Research Department of Bank of Baroda, the Q3 growth is likely at 6.4% while Barclays has pegged it at 6.7 per cent.

Indian stock market’s benchmark Sensex slumped 1.08% or 790 points a day ahead of the release of the official GDP growth data. “Profit booking weighed on Indian markets, fuelled by concerns about India's Q3 GDP growth potentially slowing to 6.6 per cent from 7.6 per cent in Q2,” said Vinod Nair, Head of Research at Geojit Financial Services.

The broader Nifty 50 of the National Stock Exchange (NSE) dipped 1.11 per cent or 247.20 points. Wednesday's slump at the Dalal Street left investors poorer by about Rs 6 lakh crore.

The National Statistical Office (NSO) is scheduled to release the official data on Thursday. The NSO data will include figures on gross domestic product (GDP) for October-December quarter and also second advance estimates of national income for 2022-23.

SBI Group Chief Economic Adviser Soumya Kanti Ghosh said composite leading indicator, based on monthly data, shows a slight moderation in economic activity in Q3. SBI composite leading indicator (CLI Index) is based on 41 leading indicators which includes parameters from almost all the sectors.

“Factoring the slight decline in economic activity in Q3 FY24, we estimate GDP should grow in the range of 6.7-6.9 per cent with a GVA (gross value added) growth of 6.6 per cent,” Ghosh said.  

According to Jahnavi Prabhakar, economist at Bank of Baroda, industrial sector growth is likely to moderate to 8% in October-December 2023 period from 13.2 per cent expansion recorded in the previous quarter. ICRA has pegged Q3 industrial sector growth at 8.8 per cent.

However, the services sector is estimated to do better. Services sector growth is projected to accelerate to 6.7 per cent in Q3 from 5.8 per cent recorded in Q2 of the current financial year, as per Bank of Baroda estimate. Delayed festive surge and the cricket World Cup event are seen as a big booster to services activities during October-December 2023 period.

A slowdown in state-led capex, which has been propelling investment, likely contributed to the expected deceleration in Q3, said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.

However, slower GDP growth should be seen in the context of elevated growth of 7.7 per cent in the first half of FY2023-24, he said.

According to ICRA, lower government expenditure is likely to dampen the performance of public administration, defence and other services. The Government of India’s non-interest revenue expenditure contracted by a significant 19.1 per cent in Q3, after posting an expansion of 23.2 per cent year-on-year in July-September 2023 period.