The GDP is projected to grow by a higher than anticipated 7.3% in FY24, lifted by a sustained capital expenditure by the government as well as a resilient economy. The first advance estimates of national income, released by the National Statistical Office on Friday, is much higher than the earlier projection of 6.5%, which was later scaled up to 7% by the Reserve Bank of India. The GDP growth projection is also marginally higher than the 7.2% growth clocked in 2023-24 and is likely to give comfort to the government as it finalises its estimates for the Interim Budget.
The projection is based on extrapolations of data for eight months which are available. “Manufacturing, hotels would be benefiting from higher profits earned by companies this year which is already in evidence in first two quarters. Growth in mining and electricity is something seen in the monthly core sector data too. This is supportive of the high growth hypothesis. The financial sector continues to do well at 8.9% as both deposits and credit have grown smartly this year notwithstanding the high interest rate regime,” said Madan Sabnavis, chief economist, Bank of Baroda, while noting that farm sector growth was disappointing.
“The gross fixed capital formation rate has improved to 29.8% from 29.2% which can be more driven by the government capex,” he further said.
But concerns remain about the impact of the lower than expected nominal GDP growth that is now estimated at 8.9% in the current fiscal, which is much lower than the Budgeted 10.5% as well as 16.1% in 2022-23. Analysts point out that this has been largely due to the deceleration in the wholesale price inflation which moved to deflationary territory this year. The lower nominal GDP growth would also impact the fiscal deficit, which is now seen at about 6% of the GDP in FY24.
DK Srivastava, Chief Policy Advisor, EY India pointed out that usually, it is the combination of tax buoyancy and nominal GDP growth which determines the tax revenue growth. “The budgeted buoyancy of Centre’s gross tax revenues was only 0.99 which would imply a tax revenue growth of 8.8%, well below the budgeted GTR growth of 10.4%. However, based on data from the Comptroller General of Accounts, we expect a higher than budgeted growth in Centre’s GTR due to a much higher direct tax buoyancy than was assumed in the Budget,” he said, adding that they expect the GoI to meet its budgeted fiscal deficit target for FY24.”
According to the data, gross value added in agriculture is seen at 7.3% in FY24, while manufacturing is seen to grow at 6.5% and mining by 8.1%. The sharpest growth is seen in construction at 10.7% while financial services, real estate and professional services is likely to grow by 8.9% and utilities by 8.3% in the current fiscal.
Experts remain watchful about the rural economy as well as capex growth ahead of the General Elections and also note that global geopolitical events still need to be monitored.
“Despite global headwinds, the growth momentum witnessed in FY24 is indicative of Indian economy’s resilience. However, the road ahead is not going to be easy so long as private final consumption expenditure does not recover fully and become broad based. Here the key would be to watch the wage growth especially of the households belonging to the lower income bracket because that is what is critical for broad basing the consumption demand,” said Sunil Kumar Sinha, Principal Economist & Senior Director – Public Finance, India Ratings and Research & Paras Jasrai, Senior Analyst, India Ratings & Research.
On the demand side, while private final consumption expenditure (PFCE), gross fixed capital formation (GFCF) and exports have been pegged to grow at 4.4%, 10.3% and 1.4% in FY24 (FY23: 7.5%, 11.4%, 13.6%), government final consumption expenditure (GFCE) is expected to grow at 4.1% (FY23: 0.1%).
Aditi Nayar, Chief Economist, Head - Research and Outreach, ICRA said that implicitly, the NSO expects the GDP growth to moderate to 7% in the second half of the fiscal from 7.7% in the first half of the fiscal.
“In our view, the growth assumed for H2 FY2024 is quite high, given the tepid outlook for agriculture amidst the weak kharif output and ongoing lag in rabi sowing, as well as the feared temporary slowdown in capex ahead of the General Elections. In fact, the GoI’s capex declined by 8.8% year on year during October-November 2023 after rising by 43.1% in the first half of the fiscal,” she said.
“The economic growth is largely bolstered by state spending on infrastructure projects amid sluggish consumer spending and due to robust domestic demand and strong growth in the manufacturing and services sectors. The revised growth showcases resilience of Indian economy and maintaining its status as the fastest-growing major economy,” said Nish Bhatt, Founder and CEO, Millwood Kane International. However, impact on the global growth and trade especially through disruptions in the supply chain and the volatile geopolitical situation would have to be monitored, he further said.