India GDP Q2 Preview: Will Economy Beat RBI's Estimates For Second Time In Row Of FY24?

All eyes will be set on India's gross domestic product (GDP) growth data for the second quarter of FY24 which will be announced later on Thursday. It is most likely that the country's economic growth will surpass RBI's estimates for the second time in a row in the current fiscal. However, some hiccups will be seen in agricultural growth due to sub-par monsoons, but industrial growth is expected to rise owing to improvement in volume growth and margins of some sectors.

The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation will be releasing India's GDP growth data for the quarter July-September, 2023 (Q2 2023-24) on November 30, 2023.

In its latest note, rating agency ICRA said, "Growth in India's economic activity is expected to have slowed to 7.0% in Q2 FY2024, while remaining robust, amid an anticipated dip in agricultural growth owing to the sub-par monsoons, and a modest easing in that for services, even as industrial growth is likely to have risen aided by a pick-up in volume growth and an improvement in margins for some sectors."

Although the rating agency expects the GDP growth in Q2 FY2024 to exceed the estimate of 6.5% for that quarter, it believes the momentum is unlikely to sustain thereafter.

ICRA's note said, "Uneven rainfall, narrowing differentials with year-ago commodity prices, the possible slowdown in momentum of Government capex as we approach the parliamentary Elections, weak external demand and the cumulative impact of monetary tightening are likely to translate into lower GDP growth in H2 FY2024."

Thereby, ICRA maintains its FY2024 GDP growth estimate at 6.0%, lower than the MPC's projection of 6.5% for the fiscal. The CPI inflation is expected to average 5.3% in FY2024, slightly lower than the MPC's projection of 5.4%, even as food inflation is projected to remain elevated, above the 6.0% mark.

Also, given the domestic inflation-growth context, with geo-politics adding to uncertainty, ICRA foresees an extended pause from the MPC, until the beginning of a shallow rate cut cycle in Q2 FY2025. Further, concerns around the government's fiscal deficit and CAD remain muted, with the former not expected to surpass the budgeted target of 5.9% and the latter likely to remain manageable at 1.8-2.0% of GDP.

Meanwhile, Dutch multinational banking and financial services corporation, ING in its latest note said, "India's GDP is likely to moderate to 7.1% YoY, down from 7.8% in the second quarter. Nonetheless, this result should surpass the Reserve Bank of India's projections, as domestic economic activities remain robust and services and capital expenditure continue to drive growth."

RBI expects the country's GDP growth at 6.5% for the second quarter of FY24, which was the same as the estimates of Q1FY24. Even RBI expects GDP growth to slow after Q2! In the third and fourth quarters, the central bank expects GDP to come to 6% and 5.7% respectively. For overall FY24, RBI expects GDP growth to be at broadly 6.5%.

If Q2 GDP does come around 7% or above this level, then it would be the second consecutive quarter where the economy has surpassed RBI's estimates in this fiscal.

During Q1FY24, India's GDP expanded to 7.80%, surpassing market expectations of 7.7% slightly. The growth was 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 same period.

However, Q1FY24 growth was slower than compared to GDP rate of 13.1% witnessed in Q1 of the previous fiscal. 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%.