GDP Q1FY24 Preview: Will India's Economy Beat RBI's Estimates Of 8% Or Surprise Awaits?

India's economic growth for the first quarter of FY24 has taken centre stage. The National Statistical Office (NSO) will be releasing quarterly GDP estimates for the quarter April-June of 2023-24, on August 31. Experts are of split opinion as to where is the Indian economy headed. While ICRA expects GDP growth to surpass RBI's projection of 8% in Q1FY24, however, some experts believe the growth will be below 8%. Nevertheless, the economy is expected to improve on a quarter-on-quarter basis owing to healthy momentum in manufacturing, construction activities, and an upbeat services sector.

Real GDP registered a growth of 7.2% in FY23 compared to a growth of 9.1% in FY22. For the fourth quarter of FY23, the growth was higher than expected at 6.1%, while GVA witnessed a growth of 6.5%.

Rating agency, IRCA has estimated the year-on-year (YoY) growth of the GDP to improve to 8.5% in Q1 FY2024 from 6.1% in Q4 FY2023, boosted by the supportive base of Q1 FY2023, which saw the Indian economy normalising after the Covid19 pandemic. While the GVA growth is expected at 8.1% in Q1 FY2024 (+6.5% in Q4 FY2023), driven by the recovery in the
services sector (+9.7% vs. +6.9%), even as improved margins are likely to have shielded the industry (+7.3% vs.+6.3%) from weak external demand, with a relatively lower growth foreseen in agriculture (+4.0% vs. +5.5%).

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA Ltd said: "Economic activity in Q1 FY2024 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in Government capital expenditure. Moreover, sharply lower prices of various commodities on a YoY basis supported margins in some sectors. However, unseasonal heavy rains, the lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth."

Hence, Nair said that ICRA pegs GDP growth in Q1 FY2024 at 8.5%, exceeding the Monetary Policy Committee's (MPC's) forecast of 8.0%. However, she added, "We are circumspect that erratic rainfall, narrowing differentials with year-ago commodity prices, and possible slowdown in momentum of Government capex as we approach the Parliamentary elections, could dampen GDP growth in H2 FY2024 below the MPC's forecasts. Overall, we maintain our FY2024 GDP growth estimate at 6.0%, lower than the MPC's projection of 6.5% for the fiscal."

RBI predicts the country's GDP growth to be at 8% for the first quarter of FY24. After Q1, RBI's projections have trimmed to 6.5% growth in Q2, 6% in Q3, and 5.7% in Q4. For the full year 2023-24 fiscal, RBI expects GDP growth to be at 6.5%.

In its August monetary policy, RBI said that looking ahead, the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption. Healthy balance sheets of banks and corporates, supply chain normalisation, business optimism and robust government capital expenditure are favourable for a renewal of the capex cycle which is showing signs of getting broad-based. Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geoeconomic fragmentation, however, pose risks to the outlook.

On the other hand, CARE Ratings and brokerage Nirmal Bang expects GDP growth to be lower than RBI's projections for Q1.

In Q1 FY24, CARE Edge said the growth is expected to inch up with improved momentum in manufacturing, improvement in construction activities, and an upbeat services sector. Hence, the GDP growth is expected at 7.7% in the first quarter. For the entire FY24, the rating agency expects growth to moderate to 6.5% (from 7.2% in FY23).

If GDP growth is at 7.7% in Q1, then the economy will be at a four-quarter high. The GDP growth stood at 13.1% in the April to June 2022 quarter for FY23, and since then the economy ranged from 6.1% to 6.2% with the exception of Q3FY23 where the growth dropped significantly to 4.5%.

Meanwhile, Nirmal Bang in its research note said, " We peg GVA growth at 8.3% YoY and GDP growth at 7.9%YoY in 1QFY24 as higher subsidy pay-outs will likely pull down growth in net tax collections, leading to higher GVA growth vs. GDP growth. While GST collections grew by ~11.6%YoY on average in 1QFY24, subsidies grew by over 54% YoY."

According to Nirmal Bang, the Agriculture & Allied sector growth is to come in at 3.6%YoY in 1QFY24 versus 5.5% in Q4FY23, while industry excluding constructions to grow by 12.7% from 4.7% in Q4FY23, and mining & quarrying growth is pegged at 6.5%YoY, largely in line with mining sector growth measured by the Index of Industrial Production (IIP) at 6%YoY. Further, the manufacturing sector growth is factored at 15% in Q1FY24.

Also, in Q1FY24, the brokerage estimates the service sector including constructions to record a growth of 7.7% as against 7.4% in Q4FY23. The construction is seen to grow 15% YoY, with Cement and Steel production averaging 13.9% YoY. Lastly, the growth of Trade, Hotels, Transport and Communication is expected by 10%YoY, and Financial, Real Estate and professional Services growth is pegged at 7% YoY.

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