Ind-Ra Raises India's GDP Growth Forecast To 6.2% For FY24 From Earlier 5.9%; Here's Why

India Rating has raised India's GDP growth estimate for FY24 to 6.2% from earlier forecast of 5.9%. The uptick in forecast is supported by a host of factors such as sustained government capex, deleveraged balance sheet of corporates, and new private corporate capex cycle prospects among others. Nevertheless, the GDP growth which was at 7.8% in Q1FY24 is expected to slow down in the remaining three quarters of current fiscal.

In its report, Ind-Ra said, "has revised up its GDP growth estimate for FY24 to 6.2% from earlier 5.9%. There are a number of factors supporting the economic recovery such as sustained government capex, deleveraged balance sheet of corporates/banking sector, the likelihood of subdued global commodity prices and the prospect of a new private corporate capex cycle."

However, there are constraints as well.

According to India-Ra, exports are facing global headwinds and recorded negative growth in 1QFY24. The International Monetary Fund expects the global GDP growth to fall to 3.0% both in 2023 and 2024 from 3.5% in 2022. 10% deficit in monsoon rainfall by end-August 2023 is expected to pose a new challenge to the economy. Tighter financial conditions have led to rise in the interest rate/ cost of capital, and industrial growth especially manufacturing growth continues to be tepid.

"All these risks will continue to weigh and restrict India's GDP growth to 6.2% in FY24 (FY23: 7.2%), and the quarterly GDP growth, which came in at 7.8% in 1QFY24, is slated to slow down sequentially in the remaining three quarters of FY24," says Sunil Kumar Sinha, Principal Economist, Ind-Ra.

While the Reserve Bank of India (RBI) is expecting the same, it estimates the overall FY24 GDP to come in at 6.5%, Ind-Ra said.

In the first quarter of FY24, India's expanded to 7.80%. The growth is driven by the services sector coupled with consumer demand and a rise in government capital expenditure. Meanwhile, gross value added (GVA) at basic prices came in at 7.8% in the first quarter, as against 11.9% a year ago in the same period. However, the Q1FY24 GDP data is still lower than the 8% growth rate expected by RBI in the quarter.

Where Ind-Ra raised its estimates for India's GDP growth, the Asian Development Bank (ADB) has lowered its forecast by 1 percentage point to 6.3% for 2023 compared to the previous 6.4%.

In its September 2023 bulletin, RBI said, "Dispelling this global gloom, the Indian economy is picking up steam and strength. Real GDP growth for the first quarter of 2023-24 came in exactly at the nowcast presented in the August edition State of the Economy - at 7.8 per cent year-on-year (y-o-y) and just a shade below the projection of the MPC."

RBI added, "Significantly, this was led by domestic drivers - private consumption and fixed investment - which offset the negative spill from net exports. In the second quarter, available indicators point to a gain in quarter-on-quarter (q-o-q) momentum on the back of domestic demand. Clothing and lifestyle retailers and shopping malls are experiencing a sharp recovery in sales across price points in the past few weeks."

According to RBI's bulletin, this has raised hopes of a pick-up in demand through the rest of the festival season that began with Raksha Bandhan and Onam, and cheers for discretionary retail spending. On watch are electronics and autos, which may be the next segments to attract festival spend. There are also indications that rural demand for fast moving consumer goods has swung back into positive territory after being under pressure for over a year.

Looking ahead, RBI's bulletin said, India's consumer market is expected to become the world's third largest by 2027, with household per capita spending outpacing all other developing economies in Asia.

RBI predicts real GDP growth for 2023-24 at 6.5%.