The sturdy 8.4% actual GDP development print for Q3 contrasts the grim actuality of family consumption and revenue scenario. The newest national expenditure survey (2022-23), launched after a lag of 11 years reveals actual consumption grew modestly at 3% over the previous 11 years, and the Periodic Labour Force Survey (PLFS) information signifies flat actual incomes over the previous 4 years. Also, most shopper firms have proven a lacklustre demand.

What is no surprise is that the persisting discordance has accentuated within the Q3 print and displays in a) the big contribution of the discrepancy element, b) a pointy rise in internet oblique taxes translating into enlarged expenditure GDP, and c) a disproportionate decline in imports relative to the decline in consumption.

Importantly, the newest projection of nominal GDP for FY24 at INR 293.9 trillion is a decline of two.6% from the FY24 finances projection and -0.9% over the primary advance estimate.

For the headlines, the Q3FY24 GDP at 8.4% Year-on-Year got here in increased than the Central Statistics Office’s projection thereby prompting an upward revision within the second advance estimates (AE) for the complete 12 months FY24 at 7.6% YoY vs the first AE of seven.3% YoY (Jan’24).

But on a seasonally adjusted (sa) foundation the true GDP rose modestly at 0.8% QoQ, implying an annualised development of three.1%. Putting collectively, the common QoQ rise throughout Q1-Q3 FY24 at 1.7% interprets into an annualised development of 4.1%.

Core GDP (GDP ex discrepancy or the unaccounted portion) grew by 4.7% YoY, or simply 55% of the headline GDP development. Also, together with the 0.9% QoQ sa in Q3, the annualised Q1-Q3 FY24 development in core GDP is averaging at simply 3.2%. Thus, however the robust headline print, the expansion momentum is fading.

The particulars of the expenditure aspect naked the truth that the supposedly robust development is primarily coming from a pointy contraction in imports, thereby leading to a disproportionate decline in exterior deficit, thereby decreasing the drag on the GDP development.

On an annualised foundation, imports contracted by 22% in Q3, whereas exports expanded modestly by 0.9%. The declining imports are the result of a contraction in home demand. Overall consumption, comprising personal (-0.7 QoQ sa) and authorities (-7.9% QoQ sa), contracted by 1.8% QoQ sa, annualising right into a 7% contraction.

The development in actual exports (0.9% sa annualised) signifies that regardless of the slowdown, world demand situations are nonetheless higher than home demand.

Growth in gross capital formation has decelerated to 10.6% from 11.6% in 2QFY24. But it remained flat sequentially.

On the output aspect, actual GVA development witnessed a marked deceleration from 8.2% YoY in Q1 FY24 to six.5% YoY in Q3 FY24. Sequentially, it grew by solely 0.1% QoQ sa and remained flat for the reason that final two quarters.

Agriculture GVA contracted by 0.8% YoY in Q3 FY24 with a sequential common decline of 0.6% QoQ sustaining for 3 quarters.

Industry decelerated to 10.4% YoY, additionally confirmed indicators of sequential slowdown because it contracted by 0.3% QoQ sa with the manufacturing sector contracting by 0.5% QoQ sa.

The providers sector expanded by 7% YoY and 1% QoQ sa because the commerce and monetary providers expanded sequentially.

The contrasting rise in actual GDP development and a pointy deceleration in actual GVA development marks the substantial rise within the incidence of internet oblique taxes on the expenditure aspect

Net oblique tax/GVA at 9.7% in Q3 was sharply increased than 7.8% a 12 months in the past and eight.9% within the earlier quarter. In absolute phrases, internet oblique taxes grew by 32% YoY and 12.6% QoQ.

Thus, the elevated internet oblique taxes proceed to impinge on the general home demand, which is already being dragged down by the decline in actual family incomes.

Therefore, on the face of it, although the headline GDP development appears sturdy, it camouflages the contraction in home consumption demand. It is thus cheap to imagine that personal capex would have remained languid, thereby signifying the continued overreliance on authorities capex. The statistical increase from the enlarged discrepancy element has meant that the core development is trending a lot decrease at 4% over the previous six quarters.

The sustainability of even the core development is suspect because the interim finances FY25 has scaled down the expansion in infra sector allocation (roads, railways, and defence to five.2%) and fragile assist from the disproportionate contraction in imports relative to the decline in home demand.

Dhananjay Sinha is co-head of Equities and head of Research of Strategy and Economics at Systematix Group.