India’s GDP forecast raised but El Nino, export contraction threats hover

India’s GDP forecast raised but El Nino, export contraction threats hover
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  • An average of 10 brokerage estimates sees the Indian economy growing at 6% in FY24, up from a previous forecast of 5.8%.
  • India’s Q4 GDP growth came in at 6.1% riding on the services sector and beating expectations handsomely.
  • The Indian economy grew at 7.2% in FY23, beating the government’s own forecast of 7%.
  • While most lead indicators are holding up, the threats of El Niño, and export contraction, among others, loom large.
Economists now have a more optimistic outlook on India’s growth prospects after the ‘pleasant surprise’ of Q4 GDP numbers. The better-than-expected March-quarter growth has led to an upward revision in India’s FY24 GDP forecast by most brokerages, even as economists remain cautious about the adverse impact of a potential El Niño this year.

The services sector propelled India’s real GDP growth to 6.1% in Q4 FY23, far ahead of estimates of 5% growth. For the financial year gone by (FY23), too, the GDP numbers at 7.2% were ahead of even the government’s estimates of 7%.

These readings have prompted economists to raise their gross domestic product (GDP) forecasts for the current financial year (FY24). An average of 10 brokerage estimates sees the Indian economy growing at 6% in FY24, up from a previous forecast of 5.8%.

“We are now factoring in a pickup in growth momentum in FY24. 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,” said analysts at SBI Research.

Global brokerage JP Morgan said that there could even be an upside to its forecast if the government manages to execute its ₹10 lakh crore capex outlay for FY24.


On the other hand, Bank of Baroda’s chief economist Madan Sabnavis underlined that the GDP beat in FY23 will put some pressure on FY24’s growth due to a higher base.

“The phenomenon of pent-up demand will not be strong, and private-sector investment has to pick up this year,” he added.

Most indicators holding up, but El Niño looms large

Most economic indicators across agriculture, manufacturing and services sectors are holding up, according to economists.

The GDP growth in Q4 was aided by a rebound in the manufacturing segment, which witnessed a 4.5% year-on-year (YoY) growth in gross value added (GVA). Government’s frontloaded capital expenditure during the quarter also gave GDP growth a push – the share of investments (gross fixed capital formation) in GDP rose to an all-time high of 35.3%.

“Most lead indicators for Q1 FY24 are still holding up, including GST collections, PMIs (higher services than manufacturing), industry credit growth, steel & cement output, and narrower trade shortfall, amongst others,” said Radhika Rao, senior economist, DBS Group. GST refers to goods and services tax while PMIs or Purchasing Managers Indexes are economic indicators.

However, the threat of El Niño continues to loom large and it could slow down the momentum if it manifests. Apart from this, a rise in home loan EMIs (equated monthly installment) could also put pressure on demand.

“The rise in home loan EMIs and its impact on the budgets of urban households and their consumption demand, contraction in exports and their impact on employment, and the impact of a potential El Niño on crops, food prices and farm incomes remains to be seen,” said ratings agency ICRA.

Resilient economy to support prolonged rate pause

Economists believe the resilient economic performance also gives the Reserve Bank of India’s (RBI) Monetary Policy Committee the room it needs to stick to the rate hike pause.

“A steady growth in H1 FY24 will also support the RBI staying on a prolonged pause while the rate hike cycle transmits through the economy,” said analysts at Kotak Institutional Equities.

In addition to this, the government has also met its fiscal deficit target of 6.4% of GDP, or ₹17.33 lakh crore in FY23. This is after its receipts came in marginally higher than the revised estimates while expenditure was in line. Analysts at Kotak peg the FY24 fiscal deficit at 6% of GDP, marginally higher than the government’s target of 5.9%.


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