July, 15

GDP growth: Indian economy likely grew 7.8% in Q1 FY24, say economists

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The Indian economy is likely to have grown at 7.8% in the April-June 2023 quarter, a recent survey of economists conducted by ET says. The GDP growth is largely expected to have been driven by strong domestic demand, government investments, and a tentative recovery in private investment. These may have acted as a buffer against the ongoing global economic slowdown. The estimated range of GDP growth stood between 7.5% and 8.5% in the poll.
This GDP growth will be a step up from the 7.2% growth in the previous fiscal year and the 6.1% growth in the preceding March quarter.
However, the median forecast of 7.8% from the ET poll is slightly below the 8% projection by RBI’s for the first quarter of the current fiscal. The official first-quarter GDP data will be released by the government on August 31.
Experts polled by ET are optimistic about the quarter’s outlook, predicting broad-based growth. Yuvika Singhal from QuantEco noted the role of agricultural value addition in this trajectory, supported by the success of the 2022-23 rabi output.
Economists highlight the services sector as the prime contributor to Q1’s growth, complemented by robust construction activities. Indicators of air and rail travel underline steady demand in the transport sector, though some moderation is expected due to capacity limitations, points Rahul Bajoria of Barclays.

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Government capital expenditure, both at the central and state levels, contributed to the acceleration of construction activities. Aditi Nayar, Chief Economist at ICRA, emphasized the positive effect of enhanced investment activity and government capital expenditure on Q1 FY2024’s economic activity.
While there’s strong momentum in various areas, challenges are evident. Certain sectors like mining and exports may be a drag to growth, says Bajoria adding that the latter may be impacted by external pressures and weakening demand. Factors like unseasonal heavy rains that disrupted production & logistics may have affected growth as well.
“Unseasonal heavy rains, the lagged effect of the monetary tightening, and weak external demand exerted downward pressure on GDP growth,” Nayar said.
In the initial quarter of FY24, capital spending by states increased by 76%, with the central government’s capex growing by 59.1% compared to the previous year.
The manufacturing sector also demonstrated robust growth due to lower commodity prices, which bolstered margins despite rising volumes. However, corporate activity’s growth wasn’t broad based.

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Yet, analysts anticipate a shift in momentum over the upcoming quarters. The effects of higher interest rates, coupled with a global economic slowdown, are likely to temper growth. The consensus among 22 economists polled by ET points to a median growth rate of 6.2% for the full fiscal year, which is below RBI’s 6.5% forecast.
“Corporate performance in the (April-June) quarter pointed to a sharp pick up in profits, though not broad-based. This reflected a cooling-off in input costs, whilst sales growth eased,” said Radhika Rao, senior economist, DBS group.
Economists caution about potential challenges ahead, including the impact of food price spikes and an erratic monsoon on consumption recovery. Retail inflation escalated to 7.4% in July, exceeding the upper limit of RBI’s target range (2-6%), and is expected to remain elevated in August.
The revival of private investment could act as a growth catalyst, helping India make strides toward becoming the world’s third-largest economy, according to Debopam Chaudhuri from Piramal Group.
The finance ministry emphasized the continuing role of domestic consumption and investment demand in driving growth. However, it acknowledged persistent uncertainties on the global and domestic fronts, which might contribute to elevated inflation pressures. The ministry’s monthly economic report for July emphasized the need for vigilance by both the government and RBI. Economists polled by ET forecast average inflation of 5.5% in FY24, slightly higher than RBI’s revised estimate of 5.4%.

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