ICRA has projected the year-on-year (YoY) growth of the GDP to moderate sequentially to 6.0% in Q3 FY2024 from 7.6% in Q2 FY2024. Further, the GVA growth is estimated to ease to 6.0% in Q3 FY2024 from 7.4% in Q2 FY2024, driven by the industrial (to +8.8% from +13.2%) and agriculture (to +0.5% from +1.2%) sectors, amidst an improvement in services (to +6.5% from +5.8%). The anticipated deterioration in the industrial sector growth in Q3 FY2024 is partly attributable to an adverse base effect (+2.3% in Q3 FY2023 vs. -0.5% in Q2 FY2023) and a deceleration in volume expansion (IIP growth of 5.8% in Q3 FY2024 vs. 7.8% in Q2 FY2024), even as the continued deflation in commodity prices kept profitability of some sectors favourable. Additionally, a mild 0.2% contraction in the total spending of Government of India and 25 state governments (all states except Arunachal Pradesh, Goa and Manipur) in Q3 FY2024 (+18.3% in Q2 FY2024) is expected to have dulled the GVA growth in the quarter.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA Ltd. said: "Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in Government expenditure and an uneven monsoon are expected to dampen the GDP growth to 6.0% in Q3 FY2024 from 7.6% in Q2 FY2024."

ICRA estimates the industrial GVA growth to record a broad-based moderation to 8.8% in Q3 FY2024 from 13.2% in Q2 FY2024, led by all four sub-sectors, namely, manufacturing (to +10.0% from +13.9%), electricity (to +8.0% from +10.1%), construction (to +7.0% from +13.3%), and mining and quarrying (to +7.0% from +10.0%). ICRA projects manufacturing GVA expansion at a healthy 10.0% in Q3 FY2024, twice as high as the 4.7% seen in Q1 FY2024, albeit lower than the 13.9% recorded in Q2 FY2024, amid a deceleration in volume growth as reflected in the manufacturing IIP. The YoY growth in electricity generation tempered in Q3 FY2024 owing to moderation in demand (to +9.4% from +11.7%, respectively) with the onset of the winter season. Moreover, the pace of construction activity is anticipated to have slackened in Q3 FY2024 relative to Q2 FY2024, with the YoY growth in production of cement (to +4.5% from +10.4%), and steel (to +8.6% from +15.4%) witnessing a deterioration.

The momentum in India's investment activity moderated in Q3 FY2024, with an easing in the YoY growth of nine of the 11 investment-related indicators, relative to Q2 FY2024. For instance, the capital outlay and net lending of 25 state governments shrank by 3.9% on a YoY basis, after having surged by 42.4% in Q2 FY2024. Further, the YoY expansion in the Government of India's (GoI's) gross capex dipped slightly to 24.4% in Q3 FY2024 (-9.4% in Q3 FY2023) from 26.4% in Q2 FY2024 (+42.4% in Q2 FY2023), despite a low base. Other indicators reporting a slowdown in growth in this period include engineering goods imports, infra/construction goods output and CV registrations.

Owing to the decline in output across all major kharif crops projected by the First Advance Estimates, ICRA projects the growth in agriculture, forestry, and fishing to dip to a muted 0.5% in Q3 FY2024 from 1.2% in Q2 FY2024. This would be the lowest growth print for the sector since Q4 FY2019 (-0.9%).

In contrast to industry and agriculture, ICRA estimates the services GVA YoY growth to rise to 6.5% in Q3 FY2024 from 5.8% in Q2 FY2024, led by trade, hotels, transport, communication and services related to broadcasting (to +8.0% from +4.3%). Several high frequency indicators related to this sub-sector displayed an improvement in their YoY growth in Q3 FY2024 relative to the previous quarter. This sub-set includes air cargo traffic, ports cargo traffic, GST e-way bills, railway freight, services exports, and the number of telephone subscribers.

However, the GoI's non-interest revenue expenditure contracted by a significant 19.1% in Q3 FY2024, after having expanded by 23.2% in the prior quarter, which would dampen the performance of public administration, defence and other services (to +5.0% from +7.6%). Moreover, the combined revenue expenditure of the aforesaid 25 state governments witnessed a lower YoY growth of 7.5% in Q3 FY2024, compared to 10.7% in Q2 FY2024. In aggregate, the total expenditure of the GoI and 25 state governments shrank by 0.2% in YoY terms in Q3 FY2024, after having expanded by 12.1% and 18.3%, respectively, in YoY terms in Q1 FY2024 and Q2 FY2024.