11:00 (IST), May 31
India Q4 GDP Growth Data :Indian economy likely to have grown 7.3% yoy
India Q4 GDP Growth Data: India’s Jan-March’24 national accounts data will be released on 31 May after market hours. We are forecasting Jan-March’24 real GDP to have grown 7.3%yoy during the quarter, which is higher than what we had previously anticipated. DB’s India Macroeconomic Momentum Indicator (IMMI), which is a composite index of 5 high-frequency growth indicators – industrial production, exports, non-oil-non-gold imports, bank credit and consumer goods – tracks quarterly GDP growth quite well in advance and is indicating 7.0%+ growth during Jan-March’24. Our DB Composite Leading Indicator (CLI) – which comprises nearly 65 high-frequency indicators – is also pointing towards 7.0%+ real GDP growth in Jan-March’24. We are forecasting real GVA growth at 6.5%yoy for Jan-March’24, 90bps lower than our GDP estimate, says Kaushik Das, chief economist, India & South Asia, Deutsche Bank.
Nominal vs. real GDP growth trend – divergence due to deflator issue
The Indian economy has exhibited remarkable resilience despite higher-rates-for-longer, Russia-Ukraine war and Covid prior to that, though a strong pickup in real GDP growth during FY24 can be also attributed materially to a very low GDP deflator. Nominal GDP growth likely slowed down to 9.5%yoy in FY24, from 14.5%yoy in FY23 and 18.9%yoy in FY22. But, in real terms, GDP growth is likely to have accelerated to 8.0%yoy in FY24 vs. 7.0%yoy in FY23, thanks to a collapse in GDP deflator to 1.5% in FY24 vs. 7.9%yoy in FY23 and 9.4% in FY22.
GDP deflator is calculated incorporating both WPI and CPI inflation, with the former being accorded a higher weight of 65-70%. Ideally, WPI inflation should not be given such a high weight, given that services sector contribute the maximum to GDP (64-65%) at this juncture, while manufacturing sector’s contribution to GDP is much smaller. But, due to legacy issues, the same method is continuing to calculate the GDP deflator.
As WPI inflation was negative in FY24 (-0.7% average) vs. +9.6%yoy in FY23 and +13.0%yoy in FY22, the GDP deflator is likely to be lower than 2%, even though CPI inflation averaged 5.4% in FY24. An appreciably lower GDP deflator has artificially pushed up the real GDP growth outturn for FY24, in our view. If real GDP was calculated giving a higher weight to CPI inflation, as it should (given that services sector contribute 64-65% to India’s GDP and CPI inflation captures services sector inflation trend more comprehensively compared to WPI inflation), the real GDP outturn would have been significantly lower.
