UBS marginally upgrades Indias FY24 GDP growth estimate to 6.3%

Foreign brokerage UBS on Wednesday marginally upgraded its FY24 real GDP growth estimate for India to 6.3 per cent, citing better-than-expected domestic economic activities. However, the brokerage also flagged key factors to watch out for, including managing macro risks and next year's General Elections.

Domestic factors supporting growth

UBS chief India economist Tanvee Gupta Jain said that domestic economic activities are fairing better than expected, and this is expected to support growth momentum in the near term. She pointed to higher household spending during the ongoing festive season, buoyant credit growth, and reallocation of government spending towards pro-rural and pro-social schemes ahead of the election calendar as key factors.

Slower global growth, but revised estimate below consensus

Jain noted that she is raising her expectations despite slower global growth. However, she added that the revised estimate of 6.3 per cent is still lower than the 6.4 per cent consensus. It can be noted that the Reserve Bank has estimated growth to come at 6.5 per cent for FY24, while Governor Shaktikanta Das recently said that the number for the July-September 2023 period will surprise on the upside.

Indias growth to settle towards long-run average

Jain said that going forward, she expects India's growth to settle towards the long-run average of 6.2 per cent and 6.5 per cent in FY26 and FY27. She also highlighted that investors' perception of whether Prime Minister Narendra Modi will win in 2024 will be the key local factor for investors over the next six months, adding that political stability could ensure the reform agenda continues.

Consumption growth to see gradual normalisation

The brokerage expects consumption growth to see a gradual normalisation on softening in corporate wages, flattening of personal loan growth, peaking of government's welfare spending post-elections, and lagged impact of monetary tightening on households' disposable income. Without giving a timeline, it said the pick-up in capex spending will likely become more broad-based and added that public capex will likely stabilise on stretched government finances. Exports could see a marginal improvement but will likely remain tepid and be dependent on global growth uncertainty, it said.

Medium-term growth potential revised upwards

The brokerage also upped its expectations on the Indian economy's growth potential in the medium term to 6-6.5 per cent from the earlier 5.75-6.25 per cent. This improvement is owing to significant digitalisation adoption, an easing of financial sector weaknesses, and the government's reform agenda to help support India's integration into global value chains, it said.

Challenges for the economy

However, UBS also flagged a slew of challenges for the economy, including providing productive jobs to the rising working-age population, a less friendly external environment, and the automation overhang. These challenges will need to be addressed in order to sustain India's growth in the long run.

UBS's revised GDP growth estimate for India is a positive sign, indicating that the economy is expected to remain resilient despite global headwinds. However, the brokerage also highlights the importance of managing macro risks and the upcoming General Elections as key factors to watch out for. By addressing these challenges, India can continue to sustain its growth and achieve its full potential.