MPC Meet: After strong Q2 growth, RBI ups FY24 GDP estimate to 7%

The central bank's monetary policy committee (MPC) today decided to increase the gross domestic product (GDP) growth estimate for FY24, while also increasing its estimates for the third and fourth quarters of the fiscal year 2023-24. For the full fiscal year, the RBI's MPC projected the GDP to increase to 7%, up from 6.5% estimated earlier.

RBI governor Shaktikanta Das says the October-December quarter economic growth is now seen growing at 6.5% up from 6% predicted earlier, while the January-March quarter real GDP could grow 6%, up from 5.7% projected earlier.

In the next fiscal year, the country could see 6.7% growth in April-June FY25, Das says.

Beating estimates, India's GDP grew 7.6% year-on-year in the July-September quarter, though it was lower than the 7.8% growth seen in the April–June quarter. The economy grew stronger than expected on a boost in “buoyant growth” in manufacturing (at 13.9%) and construction (13.3%).

Among the core sectors, agriculture, the most consistent one since the pandemic, grew only 1.2% in Q2 (18-quarters low). The industry grew 9-quarters high to 13.2% in Q2 vs 5.5% in Q1. The services sector was the only laggard and grew only 5.8% due to 10-quarters low growth of 4.3% in the ‘trade, hotels, transport, communication & services related to broadcasting’ sector. On the expenditure side, the PFCE (private final consumption expenditure) growth decelerated to 3.1%, mainly due to higher inflation.

In the wake of the strong GDP growth in Q2 FY24, many other financial institutions raised the growth forecast for 2023-24. SBI Research, the research wing of state lender SBI, says the overall growth for the full fiscal will be around 7%.

Ratings agency ICRA also raised its FY2024 GDP growth forecast to 6.2% from 6% earlier on expectations of a significant moderation in H2 FY2024. Other agencies like Morgan Stanley, Citi, and Goldman Sachs also increased GDP growth forecasts.

Morgan Stanley revised the India GDP growth forecast target by 50 basis points to 6.9% for FY24. Goldman Sachs also revised the calendar year growth forecast by 20 basis points to 6.7%. However, it left the CY24 GDP growth forecast unchanged at 6.2%.

In line with the expectations, the RBI's MPC today decided to maintain the status quo key lending repo rate at 6.5%. In case of inflation, the MPC has kept the retail inflation (CPI) forecast for FY24 "unchanged" at 5.4%. The RBI governor says it is aiming to achieve a 4% consumer price-based index (CPI) inflation target, even though elevated global sugar prices are worrying. The RBI has also kept unchanged the inflation estimates for the remaining quarters of the fiscal year.

In the October MPC meeting, the RBI had estimated the real GDP growth at 6.5% in FY24, including 6.5% in Q2, 6% in Q3, and 5.7% in Q4.