India's GDP may grow 7.3% in FY24: Govt's first advance estimates

Construction, manufacturing likely key drivers; weak consumption growth among major concerns

The National Statistical Office (NSO) has projected the Indian economy to grow at 7.3 per cent in 2023-2024 — higher than the Reserve Bank of India’s estimate of 7 per cent — assuming an investment-led recovery in the world’s fifth largest economy.

This beats the Street estimates by a wide margin. Most economists have assumed India’s gross domestic product (GDP) to grow between 6.5 per cent and 6.7 per cent during the ongoing financial year. In FY23, GDP expanded 7.2 per cent. 

The Indian economy grew 7.7 per cent in the first half (April-September) of FY24, data for which was released on November 30. 

Released by the NSO on Friday, the First Advance Estimates of GDP — which have incorporated industrial production data of an additional month (October), as well as certain lead indicators until November and December — implicitly assume 6.95 per cent GDP growth in the second half (October-March) of the current financial year.

With the government shifting the date of the presentation of the Union Budget to February 1 from the last day of February, starting with the FY18 Budget, the statistics department has advanced the release of the First Advance Estimates so that the government has an annual estimate of GDP that could be incorporated in the Budget calculations even at the cost of accuracy.

“The First Advance Estimates of FY24 show no let up in growth momentum in the economy. Resilience and strength of the economy, underpinned by reforms of the last nine years, have laid the foundations for the economy to sustain a healthy growth rate in the coming years,” the finance ministry posted on X. 

On the NSO's estimates, Aditi Nayar, chief economist at ICRA, said: “In our view, growth assumed for the second half of FY24 is quite high, given the tepid outlook for agriculture, as well as apprehensions of a temporary slowdown in capex ahead of the general elections. In fact, the central government’s capex declined by 8.8 per cent during October-November 2023, after rising by 43.1 per cent in the first half of FY24.”

The estimated growth in gross value added (GVA) of 6.9 per cent for FY24 implies that growth under this metric has been assumed at 6.2 per cent in the second half of FY24, significantly lower than the imputed GDP growth for the same period.

The profile of sectoral growth shows a balanced recovery in all sectors, except agriculture. In FY24, growth in the farm sector is expected to slow down to 1.8 per cent because of poor kharif harvest and slower rabi sowing; manufacturing growth is projected to accelerate by 6.5 per cent during the same period, supported by the easing of input cost pressure and resultant profit growth for listed companies. 

The labour-intensive construction sector is likely to pick up pace with the NSO estimating 10.7 per cent growth in FY24. But the service sector, the largest component of GDP, is estimated to grow relatively slow at 7.7 per cent in FY24 against 9.5 per cent in FY23. The biggest component of services -- trade, hotels, transport, and communication –is projected to expand by 6.3 per cent due to a higher base. The other two components of the services sector – financial, real estate and professional services, and public administration -- are pegged to clock 8.9 per cent and 7.7 per cent growth, respectively, this financial year.

Details on the expenditure side of GDP reveals that investment is the main driver of growth in FY24. Growth in private consumption is expected to slow down in 2023-2024 to 4.4 per cent, while government spending is projected to pick up pace, growing at 4.1 per cent. 

Though growth in investment demand as represented by gross fixed capital formation (GFCF) is estimated to ease to 10.3 per cent, from 11.4 per cent in FY23, it will remain the mainstay of economic recovery -- led by sustained focus of the central government on capex. With global growth remaining weak, the external sector remains a major drag on India’s growth, with net exports contributing negatively to real GDP growth (at -3 percentage points).

Rajani Sinha, chief economist at Care Ratings, said a concerning aspect regarding projected GDP data is weak consumption growth. “This would be the slowest consumption growth in the past two decades, barring the pandemic year of FY21. For sustained investment growth, it is very important that consumption growth is bolstered. The other critical aspect would be a meaningful pickup in private investment in the coming quarters,” she said.

The NSO has pegged nominal GDP growth at 8.9 per cent in FY24, much lower than the 10.5 per cent assumed in the Budget. Some analysts believe this may make it a little difficult for the government to achieve the fiscal deficit target, unless it is matched with savings by key departments. “Based on nominal GDP for FY24 estimated by the NSO, the Centre’s absolute budgeted fiscal deficit of Rs 17.9 trillion works out to 6 per cent of GDP, a tad higher than the FY24 BE of 5.9 per cent of GDP,” said Nayar of ICRA.

D K Srivastava, chief policy advisor at EY India, on the other hand, said he expects the government to meet its budgeted fiscal deficit target for FY24 due to a higher than budgeted growth in the Centre’s gross tax revenue because of a much higher direct tax buoyancy than assumed in the Budget.