Ind-Ra credits higher tax for 'surprising' 8.4% Q3 FY24 GDP growth
In the first quarter of the financial year 2023-24, the GVA and GDP growth was 8.2 per cent, while in the second quarter, the GVA was 7.7 per cent and GDP 8.1 per cent.
India Ratings and Research (Ind-Ra), principal economist, Sunil Kumar Sinha, has said that a high GDP growth rate of 8.4 per cent in the third quarter (Q3) of the financial year 2023-24 (FY24) was surprising. He has credited high tax component for the high GDP growth. He said, “When we analyse the data then what is visible is the wedge between the GVA and GDP. A large impetus to Q3 GDP has come from higher tax collection, but this phenomenon is unlikely to be repeated in the fourth quarter. The wedge between the GDP and GVA is unlikely to be repeated in the fourth quarter.”
In the fiscal year 2024, the Indian economy had grown 8.2 per cent in the June quarter , 8.1 per cent in the September quarter and 8.4 per cent in the December quarter. While the gross value added (GVA) was 6.5 per cent in the third quarter, the GDP growth rate stood at 8.4 per cent. This wedge is on account of higher taxes collected during the quarter. In the first quarter, the GVA and GDP growth was 8.2 per cent, while in the second quarter, the GVA was 7.7 per cent and GDP 8.1 per cent.
GDP is the total value of goods and services produced in a given period. GVA is GDP minus net taxes (gross tax collection minus subsidy).
According to Sinha, the growth rate in the first two quarters benefited from a low base, though the 8.4 per cent growth rate in the third (October-December 2023) quarter was surprising.
India’s GDP to fall sequentially in Q4 FY24: Ind-Ra
India Ratings and Research (Ind-Ra) expects the country’s GDP growth rate to fall sequentially to 6.2 per cent in the March quarter of financial year 2023-24. The credit rating agency expects the entire FY24’s growth rate to be more or less similar to that of the preceding fiscal. According to Ind-Ra, principal economist, Sunil Kumar Sinha, the GDP growth rate for the entire FY24 may fall marginally on yearly basis and come around 6.9-7 per cent from 7 per cent in FY23.
FY25 GDP growth rate poised at 7.1 per cent: Ind-Ra
The Reserve Bank, in its monetary policy review in April, projected GDP growth for 2023-24 at 7 per cent. As regards the economic growth in the current fiscal, Sinha said the GDP is expected to expand at 7.1 per cent. “Even if we set aside the tax component, the momentum witnessed in the first and second quarters has continued in the subsequent quarters, and the likelihood is that momentum will continue in FY25,” he added.
The services sector, he said, will continue the momentum, led by construction and electricity, while mining and industrial output will be laggard.
Going forward, GDP growth rate will be more broad-based in FY25
“The prediction of above normal monsoon, if it turns out to be true, will see some revival in rural demand, which will support consumption demand, and make it broad-based, instead of skewed currently,” Sinha said.
The finance ministry, in its monthly economic review, said resilient growth, robust economic activity indicators, price stability, and steady external sector performance continue to support India’s promising economic performance amid uncertain global conditions.
Overall, India continues to be the fastest-growing major economy, with positive assessments of the growth outlook for the current financial year by international organisations and the RBI, the ministry noted.
The GDP numbers for the fourth quarter (January-March 2024) and the provisional estimates for the 2023-24 fiscal are scheduled to be released by the government on May 31.