Indian economy to exceed RBI forecast to grow 8.3-8.5% in Q1 FY24: Economists

The Indian economy is estimated to grow between 8.3% and 8.5% in the April-June quarter of FY2022-23 on a boost in services demand and improved investment activity, thereby exceeding the Reserve Bank's Monetary Policy Committee’s (MPC’s) forecast of 8% for the quarter, economists say.

According to SBI Research's Artificial Neural Network (ANN) model, with 30 high-frequency indicators, the quarterly GDP growth for the Q1 FY24 is estimated at 8.3%, while FY24 growth is projected to be higher than the RBI's full-year estimate of 6.5%.

"Most importantly, there has been a surge in capital expenditure in Q1, with the Central government spending 27.8% of budgeted, while states at 12.7% of budgeted. States like Andhra Pradesh, Telangana, Madhya Pradesh where are elections are due have registered capital expenditure growth up to 41%," Group Chief Economic Adviser, Economic Research Department, SBI, writes in the latest Ecowrap report.

SBI Research has analysed corporate results, which strengthens the faith in its growth numbers. In Q1 FY24, Indian Inc. reported top-line growth of around 3%, while EBITDA and PAT grew by more than 30%, as compared to Q1 FY23, contributed by sectors like banks, auto, IT, pharma, FMCG, refineries, etc.

"Corporate results, for Q1FY24, ex BFSI, represented by more than 3000 listed entities shows almost flat topline. However, EBITDA and PAT grew by 23% and 33% respectively as compared to Q1FY23."

Corporate margin, which was under pressure for the last few quarters, has shown signs of improvement since Q4 FY23, says SBI Research. Additionally, credit growth continued to grow in double digits and has become broad-based across sectors. "In 2023-24 (up to 28 July), ASCB’s Deposits grew by 12.9% (last year 9.2%), and credit grew by 19.7% (last year: 14.5%)."

Ratings agency ICRA, on the other hand, has projected the year-on-year (YoY) growth of the GDP to improve to 8.5% in Q1 FY24 from 6.1% in Q4 FY23, boosted by the supportive base of Q1 FY2023, which saw the Indian economy normalising after the Covid-19 pandemic. The GVA growth is seen at 8.1% in Q1 FY2024, up from 6.5% in Q4 FY 2023 on the recovery in the services sector (+9.7% vs. +6.9%).

Aditi Nayar, Chief Economist, head-research & outreach, ICRA, says economic activity in Q1 FY2024 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure.

"Moreover, sharply lower prices of various commodities on a YoY basis supported margins in some sectors. However, unseasonal heavy rains, the lagged effect of the monetary tightening, and weak external demand exerted downward pressure on GDP growth.”

She says however, erratic rainfall, narrowing differentials with year-ago commodity prices, and a possible slowdown in the momentum of government capex could dampen GDP growth in H2 FY2024 below the MPC’s forecasts. "Overall, we maintain our FY2024 GDP growth estimate at 6.0%, lower than the MPC’s projection of 6.5% for the fiscal.”

In Q4 FY24, India’s economic growth rate accelerated to 6.1%, compared to a 4.4% growth rate in the December quarter.

Notably, the RBI in its latest monetary policy announcement retained its real GDP projection at 6.50% for FY24, with Q1 at 8.0%, Q2 at 6.5%, Q3 at 6.0%, and Q4 at 5.7%. The IMF, however, projected India’s growth at 6.1% in 2023, a 0.2 percentage point upward revision compared with its April projection, due to stronger-than-expected growth in the fourth quarter of 2022.