India's Q2 GDP observes 6.7% growth for its robust services sector

The Indian economy is witnesses 6.7% growth during the July-September quarter, which is higher than the Reserve Bank of India's forecast of 6.5%. The services sector played a significant role in this growth, while robust manufacturing and construction activities also contributed. The forecasted growth rate ranged from 6.2% to 7%. In the last fiscal year, the economy grew by 7.8% in the April-June quarter and 6.2% in the July-September quarter.Aditi Nayar, the chief economist at ICRA, has predicted that the GDP growth rate will slow down to 7% in the second quarter of FY24 due to a less supportive base, which is still above the MPC's last estimate of 6.5%. Rajani Sinha, chief economist at CareEdge, expects a growth rate of 6.5% in Q2 of FY24. The official national accounts data for the second quarter of the current fiscal will be released at the end of November. The services sector will drive growth in Q2, as indicated by strong services PMI and passenger traffic numbers, while construction and manufacturing are also expected to perform well.

S&P Global's Services PMI averaged at 61.1 in the July-September quarter, showing an increase from 60.6 in the previous three months. This suggests a strengthening of services activity in the quarter. A PMI value above 50 indicates growth. Senior Economist at DBS, Radhika Rao, stated that high-frequency prints such as PMIs, capacity utilization, credit growth, infrastructure indices, and others, signify that service sector activity remained strong in the second quarter in addition to manufacturing growth. Furthermore, manufacturing activity also improved in the second quarter of FY24, as companies experienced better export demand, despite a slowdown in global growth.

In driving growth, higher investment by states and increased domestic consumption played a vital role too. MD and head of EM Asia (ex-China) economics, Barclays, despite several external headwinds, India continued to outperform its global peers on economic growth. In Q2FY24, buoyant consumer sentiment, state investment, and domestic consumption bolstered economic activity. Consumption in urban areas has performed better than in rural areas, although the latter showed some improvement during the quarter. In the September quarter, packaged consumer goods in India grew by 9% in value and 8.6% in volume compared to the previous year. This growth was due to increased spending in rural India on both essential and discretionary products. The experts attribute this growth to lower inflation, a decrease in unemployment, and lower LPG prices.