India's GDP growth in Q2 surpasses expectations; economists suggest RBI could adopt a hawkish stance.

India's Q2 GDP growth has surpassed economists' expectations, reaching 7.6 percent compared to 6.2 percent in the same period last year. This strong performance is attributed to robust domestic consumption and significant growth in the services sector. The GDP figure exceeds the Reserve Bank of India's (RBI) prediction of 6.5 percent, leading economists to anticipate a hawkish stance from the RBI in its upcoming monetary policy committee (MPC) announcement on December 8.

Economists, including Sakshi Gupta from HDFC Bank and Madhavi Arora from Emkay Global Financial Services, highlight the positive impact of factors such as robust corporate profits, pre-election government spending, and a healthy financial sector with easier lending standards and higher credit growth. They also note the role of cyclical and structural factors in supporting the growth.

The surprise growth has implications for inflation risks, leading experts to expect the RBI to maintain a hawkish approach to monetary policy. The GDP growth outperforms the earlier forecast, and industry growth is particularly strong, supported by domestic demand and lower input costs.

Despite the positive GDP print exceeding expectations, both the government and the RBI had previously hinted at the possibility of a positive surprise. Economic Affairs Secretary Ajay Seth and RBI Governor Shaktikanta Das had earlier indicated their anticipation of a strong GDP growth number for the second quarter of FY24.

The overall sentiment reflects the resilience of the Indian economy, with private capex spending gaining momentum, and government capex crowding in private spending in households and corporates, according to Rumki Majumdar, Economist at Deloitte India.

In summary, India's Q2 GDP growth has surpassed expectations, leading economists to predict a hawkish stance from the RBI, considering the strength in economic activity and the persistence of inflation risks.