SBI upgrades India's FY24 GDP growth forecast to 6.7%

A day after India's Q4 gross domestic product (GDP) growth rate in FY23 beat estimates, SBI Research's Ecowrap upgraded the country's GDP growth forecast to 6.7% from the 6.2% projected earlier for FY24. "We are now factoring in a pick up in growth momentum in FY24. We are upgrading our baseline forecast from 6.2% to 6.7%. Continuing on the path of strong activity in FY23, we project real GDP growth for FY24 at 6.7% with Q1 at 7.8%, Q2 at 6.5%, Q3 at 6.3% and Q4 at 6.2%, amid broadly balanced risks," SBI Ecowrap said in its report on Thursday.

In FY23, the country's GDP growth rate stood at 7.2%, which is higher than the Centre's second advance estimates of 7% and SBI’s forecast of 7.1%. In Q4 FY23, the GDP rate surged to 6.1% owing to a pick-up in manufacturing activity. The GDP growth for Q4 FY23 was higher than the 4.5% expansion reported in Q3 FY23, while it stood at 4% in the January-March quarter last year, according to government data.

As per the SBI Ecowrap report, during FY23, manufacturing was the only sector which exhibited muted growth of 1.3%, though in Q4 manufacturing growth rate jumped by 4.5% (partly aided by a low base) and agriculture grew by 4.0%. The mining & quarrying and construction grew by 4.6% and 10.0%, respectively. Among services, ‘financial, real estate & professional services’ grew by 7.1% and ‘trade, hotels, transport, communication & services related to broadcasting’ grew by 14.0%.

"The construction sector has remained upbeat due to sustained impetus on infrastructure spending by the government. The healthy order book position of the construction sector, aided by ~11% growth in FY23 (to around ₹7 trillion for nine construction players), reflects medium-term revenue visibility in the space and improvement in rural employment," SBI Ecowrap said.

"Despite some slowdown in demand, the overall economic strength remains intact. The rebalancing of demand from private consumption to investments supported by government capex needs further support. The private investment activity looks robust and domestic monetary and credit conditions remains supportive of growth in FY24," it added.

Last month, the Reserve Bank of India hiked its gross domestic product (GDP) forecast for the financial year 2023-24 to 6.5% from 6.4% projected earlier. "The steady growth in contact-intensive services should be positive for urban demand. The government's focus on capital expenditure, capacity utilisation above the long-period average and moderating commodity prices should bolster manufacturing and investment activity. The drag from net external demand may continue due to increased global headwinds. The protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%," Das had said, adding the risks are evenly balanced. 

Notably, World Bank, Asian Development Bank and International Monetary Fund (IMF) have pegged India’s GDP forecast for FY24 at 6.3%, 6.4% and 5.9%, respectively.