Economists see FY24 GDP growth at 6.5–6.7%

The first half of the fiscal year 2023-24 may have registered a strong 7.7% growth but analysts remain cautious about economic prospects for the fiscal due to worries about the farm sector. Most economists have raised their GDP growth forecasts for the fiscal but expect it to be in the range of 6.5% to 6.7%.

India Ratings and Research on Wednesday revised up its GDP growth estimate for FY24 to 6.7% from 6.2% earlier. “This has been led by a number of factors: i) the resilience of the Indian economy, which grew 7.6% YoY in Q2FY24, ii) sustained government capex, iii) deleveraged balance sheet of corporate and banking sector, iv) the prospect of a new private corporate capex cycle, and v) sustained momentum in business and software services exports, coupled with remittances from the rest of the world despite global headwinds,” it said in a statement.

It, however, highlighted risks including weak global growth and trade and highlighted that consumption demand is not broad-based.

“All these risks will continue to weigh on and restrict India’s GDP growth to 6.7% in FY24. The quarterly GDP growth, which came in at 7.8% YoY and 7.6% YoY in Q1FY24 and Q2FY24 respectively, is slated to slow down sequentially in the remaining two quarters of FY24,” said Sunil Kumar Sinha, Principal Economist, Ind-Ra.

The Reserve Bank of India has also projected a sequential slowdown in the GDP growth in the remaining two quarters and expects the overall FY24 GDP to come in at 7%.

The economy grew by 7.2% in the last fiscal and the government had estimated a growth of 6.5% for the current fiscal. However, higher than anticipated growth in the first two quarters of the fiscal has given more confidence in economic prospects. The National Statistical Office will release the first advance estimate of GDP growth for 2023-24 on January 5.

According to Madan Sabnavis, chief economist, Bank of Baroda, the economy could expand by around 6.6% to 6.7% in the current fiscal year. The previous projection was 6.5% which they revised upwards following the second quarter GDP growth estimates. However, Sabnavis cautioned that agriculture has not done as well as was expected despite other sectors growing at expected rates. “We expect farm sector to grow by 0.5% to 1% this fiscal,” he said.

Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA Ltd has revised its GDP growth forecast for the fiscal to 6.5% from the previous 6.2% and the initial 6%. “The outlook for agriculture is not very good and it could impact rural demand. The Model Code of Conduct ahead of the General Elections may also have a temporary impact on capex. These two factors have made us keep our GDP estimate limited at 6.5%,” she said.

According to official data, the Centre’s total expenditure was Rs 26.5 lakh crore or nearly 59% of the Budget Estimate between April and November this year. However, the pace of capital expenditure seems to have slowed down and stood at Rs 5.85 lakh crore or 58.5% of the BE of Rs 10 lakh crore in the period, which was a sub 2% increase on a year on year basis.

Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research said the agency has revised its GDP growth forecast to 6.% from the initial estimate of 6% for the fiscal after the second quarter data. “We have been a little cautious because of the expectation that there is a slowdown in rural economy,” he said, adding that manufacturing will continue to be a driver for growth while service sector could see some moderation in growth.

In the first half of the fiscal, agri growth was flat at 2.4% while manufacturing grew by 9.3% as against 0.9% in the first half of FY23. Gross value added in trade, hotels, transport, communication and services related to broadcasting grew by 6.6% in the first half of the fiscal as against 20.1% a year ago and financial services grew by 9% versus 7.8% a year ago.

However, there remains optimism about growth prospects and some analysts expect the economy to grow by 7% this fiscal. “While global growth is expected to slow down in CY24, we expect India's GDP growth to be a strong 7.0% in FY24 and a further 6.5% in FY25….India stands out on GDP growth outlook...Driven by renewed capex cycle, well capitalised banking system, robust credit growth, upturn in housing sector, robust domestic consumption and growing services exports, India has been the fastest growing large economy globally over the last two years,” it said in a recent report.