Economy likely to expand by around RBI's projection of 8% in Q1, FY24

Economic growth could be quite close to eight per cent during the first quarter of the current financial year, as projected by the Reserve Bank of India's monetary policy committee (MPC). The gross domestic product (GDP) growth stood at 13.1 per cent in the first quarter and 6.1 per cent in the fourth quarter of the previous year.

Various analysts that Business Standard spoke to put GDP growth in the range of 7 to 8.5 per cent for Q1 of FY24.

Financial services group Nomura, which predicts the lowest number at seven per cent for the quarter, says in a written note that its provisional nowcast suggests Q1 GDP growth of eight per cent due to base effects, closer to RBI's forecast but above its prediction of seven per cent.

Rahul Bajoria, managing director and head of emerging market Asia (excluding China) Economics at Barclays, said his projection is 7.5 per cent as things stand.

"We expect growth to remain supported by robust capital spending, construction activity and improving profit margins amid falling input costs," he said.

All others expected the economy to grow around eight per cent or over it.

Among various data points, the GDP and gross value added (GVA) for the first quarter are based on the index of industrial production (IIP), financial results of listed companies, agriculture production and allied sector targets, accounts of central and state governments as well as sectoral data.

Among macro data, the IIP growth stood at 4.5 per cent in the first quarter of the current financial year, the same as in the previous fourth quarter of FY23 but lower than 12.9 per cent in the first quarter of the year.

Data taken from IIP accounts for around one-fourth of quarterly industrial numbers in the GDP data. The rest is taken from the results of listed companies. Industry accounted for around one-third of GVA and 30 per cent of GDP at constant prices in the fourth quarter of FY23.

It should be noted that IIP is the index in volume terms, while industrial numbers in GDP data are value addition. In the past, IIP growth numbers and industrial growth in GDP data were quite close (see chart).

 

Production of major food grains – rice and wheat – at 133.5 million tonnes and 112.7 million tonnes respectively were at a record level during the financial year 2022-23 (July-June).

The Centre's capital expenditure (capex) grew 59.07 per cent to Rs 22.8 trillion in the first quarter of the current financial year against Rs 1.75 trillion a year ago.

Capex of ten big states – Andhra Pradesh, Haryana, Karnataka, Uttar Pradesh, Maharashtra, Gujarat, Odisha, Rajasthan, Kerala, and Tamil Nadu – grew 66.22 per cent at Rs 64,795 crore in the first quarter of FY24 against a decline of 3.2 per cent at Rs 38,981.29 crore in the corresponding period of the previous year.

Despite a subdued external environment, the deficit in merchandise and services stood at $22.59 billion in the first quarter of FY24 against $31.49 billion in the corresponding period of the previous year. This translates to Rs 1.85 trillion (at the average monthly exchange rate of 82.14) against Rs 2.43 trillion (77.16). This meant there would be less negative impact on the external balance of merchandise and services trade this time around.

UBS Securities India economist Tanvi Gupta said her agency's India's Composite Economic Indicator rose 4.4 per cent quarter-on-quarter on a seasonally adjusted sequential basis in the April-June quarter against three per cent in the previous quarter.

The indicator suggests economic momentum in India held up in the June quarter, even as reopening tailwinds have gradually faded, and global headwinds remain, she said.

"We believe an improved economic momentum and a favourable base effect should help accelerate India's GDP growth to around 7.5 to 8 per cent year-on-year in the April-June, 2023-24 quarter," Gupta said.

Ranen Banerjee, partner at PwC India, said while the global headwinds are becoming stronger by the day, the majority of the negative impacts from oil price rise, weakening manufacturing, weak exports as well as imports will be felt from the second quarter onwards.

He said while the projections of RBI are likely to be met in the first quarter, there are downside risks to its forecasts for the second quarter onwards.

The MPC retained its GDP growth projections for the first quarter of the current financial year at 8 per cent, as cited above. It also retained the projections for the ongoing quarter at 6.5 per cent, for the third quarter at 6 per cent, and the fourth at 5.7 per cent.

CRISIL expected the economy to grow 8.2 per cent. Its chief economist D K Joshi said this should not come as a surprise as various indicators are pointing in that direction.

"Investments will be the key growth driver. Government investments have expanded at a fast pace and credit growth is quite healthy. The Purchasing Managers Index was in the robust expansion zone and averaged around 58 and 61 for manufacturing and services, respectively, during the quarter," he said to support his projections.