Ind-Ra revises India’s FY24 growth estimates to 6.7% from 6.2%

India Ratings and Research (Ind-Ra) has increased the GDP growth estimate for the current fiscal year to 6.7 per cent from the earlier 6.2 per cent. It cited a resilient economy, sustained government capital expenditure and the potential for a new private corporate capital expenditure cycle for the upgrade. 

However, weak global growth, trade risks and volatile geopolitical situations have been highlighted as factors that may hinder growth. Sunil Kumar Sinha, Principal Economist at Ind-Ra, stated that these risks will limit India's GDP growth to 6.7 per cent in FY24. The quarterly GDP growth, which was 7.8 per cent YoY and 7.6 per cent YoY in Q1 FY24 and Q2 FY24 respectively, is expected to decrease sequentially in the last two quarters of FY24. 

The Reserve Bank of India (RBI) also anticipates a sequential slowdown in GDP growth in the final two quarters and projects the overall FY24 GDP to be 7 per cent. The Indian economy had grown by 7.2 per cent in the 2022-23 fiscal year.

Ind-Ra attributed the upgrade to the resilience of the Indian economy, sustained government capex, a deleveraged balance sheet of corporate/banking sector, the potential of a new private corporate capex cycle, and enduring momentum in business and software services exports, along with remittances from abroad. Ind-Ra emphasised that consumption demand is not widespread and wage growth is vital for consumption growth. 

The agency's computations reveal that a 1 per cent increase in real wages could potentially lead to a 1.12 per cent growth in the real private final consumption expenditure (PFCE). The multiplier effect of this could contribute to a 64 basis point increase in GDP growth.

In the second quarter of the current fiscal year, the real wage growth of lower income bracket households was slightly negative, while households in the upper income bracket saw a 6.4 per cent growth year on year, according to data. Consequently, current consumption demand is biased towards goods and services consumed predominantly by upper income households. Ind-Ra stated that for a sustainable, widespread recovery in consumption demand, persistent real wage growth for lower income households is crucial.

Ind-Ra anticipates that private final consumption expenditure (PFCE), representing individual spending on goods and services for personal use, to grow 5.2 per cent year on year in the current fiscal, compared to 7.5 per cent in the previous fiscal. PFCE growth rose to 6 per cent in the first quarter but fell to 3.1 per cent in the second quarter. 

However, PFCE growth is expected to benefit from the base effect in the second half of the fiscal year, as last year's growth during the same period was 2.5 per cent. Regarding inflation, Ind-Ra expects average retail and wholesale inflation to be 5.3 per cent and 0.6 per cent respectively in FY24.

(With PTI inputs)

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