First Advance Estimate of FY24 India GDP comes in at 7.3%

8 Jan 2024 , 05:25 PM

FY24 GDP estimated to be better than expected

As is the normal practice, the Ministry of Statistics and Program Implementation (MOSPI) has put out its first advance estimate for FY24 GDP at 7.3%. The MOSPI normally puts out the first advance estimate of GDP in the first week of January and the second advance estimate will be put out on the last day of February along with actual GDP estimate for the third quarter ending December 2023. The GDP estimate put out by MOSPI for FY24 is a full 30 bps higher than the latest RBI estimate of 7% for FY24. 

It may be recollected that the RBI in its December 2023 monetary policy had upgraded the GDP forecast for FY24 by 50 bps from 6.5% to 7.0%. In that background, the first advance estimate at 7.3% by MOSPI means that the RBI may also possibly upgrade its GDP estimates once again in its February 2024 policy. Let us look at the inside story of the first advance estimates of GDP for FY24, put out by MOSPI.

Real and Nominal GDP picture

As per the first advance estimates made by MOSPI, the real GDP or GDP at Constant (2011-12) Prices for fiscal year FY24 is estimated to scale a level of Rs171.79 trillion. This is much higher than the provisional estimates for the FY23 GDP at Rs160.06 trillion. Therefore, the real GDP growth for FY24 is estimated at 7.3%; which is higher than the 7.2% GDP reported for the fiscal year FY23. However, real GDP being net of inflation, does not say much about the level of economic activity. That is the nominal GDP. For FY24, at Rs296.58 trillion. 

This is sharply higher than the nominal GDP figure of Rs272.41 trillion for FY23, resulting in nominal GDP growth of 8.9% in FY24. This is lower than the nominal GDP growth of 16.1% in FY23. That raises the question. Why is it that the nominal GDP growth in FY24 is so sharply lower than the nominal growth in FY23, but the real GDP growth is actually higher. The difference lies in inflation. In FY23, the higher nominal did reflect a sustained bounce in the aftermath of the pandemic. However, that was largely offset by high levels of inflation. In contrast, FY24 has seen a sharp fall in inflation, which has led to higher real GDP, despite sharply lower levels of nominal GDP. In short, inflation control has played the trick in FY24.

What we read from  the real GDP numbers

The table below captures the latest advance estimates for FY24 along with the gross value added (GVA) and the GDP data on a real basis (net of inflation).

Domestic  Product	FY22 (RE) (₹ in crore)	FY23 (PE) (₹ in crore)	FY24 (FAE) (₹ in crore)	FY23 (%) Growth	FY24 (%) Growth
GVA at Basic Prices	1,37,98,025	1,47,64,840	1,57,82,157	7.0	6.9
Net Taxes on Products	11,27,815	12,41,585	13,96,485	10.1	12.5
Gross Domestic Product (GDP)	1,49,25,840	1,60,06,425	1,71,78,641	7.2	7.3
Net Domestic Product (NDP)	1,29,77,142	1,39,29,147	1,49,58,030	7.3	7.4

Data Source: MOSPI 

As can be seen from the above table the real GDP for FY24 is estimated to grow at 7.3% against 7.2% in FY23. However, during the dam period, the gross value added (GVA) growth is lower at 6.9% in FY24 compared to 7.0% in FY23. Why this dichotomy? GVA refers to the GDP shorn of the impact of taxes and subsidies and is a more realistic picture of the actual product and services output growth. If you look at the net taxes on products, the answer is apparent as the growth in taxes has sharply gone up from 10.1% last year to 12.5% in FY24, clearly showing that higher taxes are also contributing to an optical view of growth.

How expenditure components contributed to GDP growth in FY24

Another way to look at the GDP is from the expenditure perspective. The change in the components of expenditure give a clue about which component of the GDP is playing a major part in the growth.

Expenditure  Share in GDP	FY22 (RE) (₹ in crore)	FY23 (PE) (₹ in crore)	FY24 (FAE) (₹ in crore)
Private Final Consumption Expenditure (PFCE)	61.1	60.6	60.9
Government Final Consumption Expenditure (GFCE)	11.2	10.3	10.3
Gross Fixed Capital Formation (GFCF)	28.9	29.2	29.8
Changes in Stocks (CIS)	0.7	0.7	0.6
Valuables	1.6	1.2	1.1
Exports	21.5	22.8	21.7
Imports	24.2	26.4	23.7
Discrepancies	-0.9	1.7	-0.6
Gross Domestic Product (GDP)	100.0	100.0	100.0

Data Source: MOSPI 

Here are some key takeaways from the table above. The share of private final consumption has been largely constantly at around 60-61% over the last 3 years. That is a sign that the consumer driven economy in India is alive and kicking, but not really the swing factor for GDP growth. Government final consumption expenditure, after peaking at 11.2% in FY22 has tapered in the last two years. In the aftermath of the pandemic, the government was playing the role of the driving force behind growth. with the growth engine on auto mode, the government has obviously reduced its role. 

The real change has come In the share of gross capital formation in its contribution to GDP. Over the last 3 years, it has steadily moved up from 28.9% to 29.2% and to 29.8% in the first advance estimates for FY24. This is an outcome of the higher capex undertaken by the government and also the revival in the capital cycle in India, visible in the last couple of years. Most capital goods companies have seen their order books overflowing and this has turned out to be the real swing factor for GDP growth in FY24. Finally, if you look at the role of trade, it is gradually reducing as a share of GDP. This is contrast to how high it was in the COVID year. With the global slowdown and the uncertain environment, trade has surely taken a hit. It is contributing less to the GDP story.

Break up of GVA growth for FY24

One way to understand the components of the GDP growth is to look at which sectors were the key drivers. Here we do not want the impact of taxes to distort the image, so we will look at the GVA instead of the GDP.

Domestic  Product	FY22 (RE) (₹ in crore)	FY23 (PE) (₹ in crore)	FY24 (FAE) (₹ in crore)	FY23 (%) Growth	FY24 (%) Growth
Agriculture	21,49,122	22,34,269	22,74,933	4.0	1.8
Mining	3,10,415	3,24,708	3,50,870	4.6	8.1
Manufacturing	25,82,473	26,17,059	27,88,056	1.3	6.5
Electricity	3,16,110	3,44,418	3,72,919	9.0	8.3
Construction	11,29,368	12,42,354	13,75,800	10.0	10.7
Trade, Hotels	24,56,447	28,00,112	29,77,007	14.0	6.3
Finance, Real Estate	30,98,827	33,20,305	36,15,545	7.1	8.9
Public Admin	17,55,263	18,81,615	20,27,026	7.2	7.7
GVA at Basic Prices	1,37,98,025	1,47,64,840	1,57,82,157	7.0	6.9

Data Source: MOSPI 

Based on the sectoral estimates of the first advance estimates of GDP / GVA for FY24, here are some of the few takeaways. As stated earlier, we are looking at GVA instead of GDP to avoid the distortions brought about taxes.

1. Agricultural growth has fallen both in nominal terms and in real terms. For FY24, real growth in agricultural GDP is expected at 1.8% as compared to 4.0% in FY23. That is because, even nominal GDP is down yoy from 12.1% to 5.5%.

    

2. Mining growth has risen in real terms. For FY24, real growth in mining GDP is expected at 8.1% as compared to 4.6% in FY23. That is despite the nominal GDP down yoy from 35.1% to 5.8%. Clearly, it is a case of lower inflation in mining prices benefiting real growth substantially.

    

3. What about the all-important manufacturing growth? Manufacturing growth has risen sharply in real terms. For FY24, real growth in manufacturing GDP is expected at 6.5% as compared to 1.3% in FY23. That is despite the fact that the nominal GDP is down yoy from 7.0% to 4.4%.

    

4. Electricity and utility services growth has fallen both in nominal terms and in real terms. For FY24, real growth in electricity and utility GDP is expected at 8.3% as compared to 9.0% in FY23. That is because, nominal GDP is sharply down yoy from 33.5% to 9.2%.

    

5. Construction growth has risen marginally in real terms but again it is sharply down on nominal terms. For FY24, real growth in construction GDP is expected at 10.7% as compared to 10.0% in FY23. That is despite the fact that the nominal GDP is down sharply on a yoy basis from 16.7% to 9.6%.

    

6. What about the contact intensive sectors like trade, retail, and hospitality. Growth has fallen in real terms and also in nominal terms. That is largely because FY23 saw the curbs being fully removed for the first time leading to a sharp improvement in the contact intensive sectors. However, not that appears to have saturated. Hence for FY24, real growth in trade, retail, hospitality GDP is expected at 6.3% as compared to 14.0% in FY23. That is largely driven by the fact that the nominal GDP is down sharply on a yoy basis from 23.1% to 5.8%.

    

7. Even the financial services GDP has seen a rise in real terms but a fall in nominal terms while the public administration services is the only segment that has seen flat growth in real terms but positive growth in nominal terms.

The key takeaway is that across most sectors, the nominal GDP has taken a hit, which means the level of economic activity has tapered and is likely to remain weak for FY24 full year. One more trend is that the services inflation has been much more severe in the last one year. As a result, many of the services have shown growth in real terms but a sharp fall in nominal terms. That is something for the policy makers to worry about; since lower nominal growth also has its impact on the tax revenues for the full year.

What do these numbers mean for per capital income?

One of the standard measures of the prosperity of any economy is the per capita GDP or what each person earns. Some of the usages of macros, other than GDP, have also been explained below. The table captures some key details on a per capita basis.

Per Capita  Numbers	FY22 (RE) (₹ in crore)	FY23 (PE) (₹ in crore)	FY24 (FAE) (₹ in crore)	FY23 (%) Growth	FY24 (%) Growth
Per Capita GDP (₹)	1,71,498	1,96,983	2,12,600	14.9	7.9
Per Capita GNI (₹)	1,68,066	1,93,044	2,08,071	14.9	7.8
Per Capita GNDI (₹)	1,72,490	1,97,676	2,12,946	14.6	7.7
Per Capita PFCE (₹)	1,04,811	1,19,277	1,29,400	13.8	8.5

Data Source: MOSPI 

Here are some of the key takeaways on a per capital basis and how they are expected to trend.

• The per capita GDP is the total GDP divided by the population. It has been growing strongly in nominal terms in the last two years. For FY24, the per capital GDP is expected to grow at 7.9% yoy to a level of Rs212,600. That translates into per capital income of $2,550 per  person on an annual basis. That is quite low even by the standards of Easter Europe, Latin America, and Asia. 

   

• The per capital GNI is nothing but the GDP with the addition of net flows into India from foreign countries. That growth has also been steady like the goss national disposable income.

   

• Where we do see an improvement is in the per capital PFCE (private final consumption expenditure). That has seen growth of a rate much higher than the per capital GDP and shows that higher consumption expenditure is leading a lot of the GDP growth in the coming months.

To sum up the story, the first advance estimates of FY24 GDP indicate that the growth is likely to be robust in FY24 at 7.3% in real terms. However, there are some concerns on the nominal GDP is concerned, which means most of the benefits of real GDP growth in FY24 are coming purely from lower inflation. The only problem is that this cannot sustain each year and is more like a one-time benefit. That is food for thought for the policy makers.