economic-momentum-builds-as-gdp-growth-rises

India’s economic growth is expected to improve in the third quarter of the financial year 2024-25, with GDP growth projected at 6.2 per cent, up from 5.4 per cent in the second quarter, according to a report by Union Bank of India.

 

The report suggests that the negative gap between GDP and Gross Value Added (GVA) growth, which was observed in the first half of the financial year, is likely to have neutralised in the third quarter.

 

The bank’s analysis indicates that economic activity has picked up pace, contributing to the expected growth uptick.

 

It estimates that GDP growth in the October-December quarter reached 6.2 per cent, compared to 5.4 per cent in the previous quarter, due to an improved balance between GDP and GVA growth. 

 

However, the report also raises concerns over a disconnect between the trends in net indirect taxes reflected in GDP data and fiscal data.

 

It warns that the decline in net indirect tax growth in fiscal data this quarter could pose a risk of a continued negative GDP-GVA growth gap.

 

Alongside the third-quarter GDP data, the government is set to release the second advance estimate for the full-year GDP of the financial year 2024-25. Union Bank of India has kept its full-year GDP growth forecast unchanged at 6.4 per cent.

 

Achieving this target would require economic expansion of around 6.8 per cent in the second half of the financial year, compared to 6 per cent recorded in the first half.

 

Despite maintaining its full-year growth forecast, the report acknowledges potential downside risks. It suggests waiting for any data revisions before adjusting estimates, as past trends indicate that GDP figures are often revised significantly.

 

Such revisions have influenced final growth numbers in previous years, making it important to assess how updated data might impact projections.

 

The report also highlights an upward risk to the third-quarter GDP projection of 6.2 per cent, should previous quarters’ figures be revised downward. This pattern has been observed in past GDP releases, where revisions to earlier data resulted in improved final estimates.

 

In February 2024, GDP data for the third quarter of the previous financial year saw an upward revision after downward adjustments to earlier quarters.