Economists anticipate a robust revival for the Indian economy in the April-June period, marking the quickest growth in four quarters with a projected year-on-year GDP expansion of 7.7%, according to a recent Moneycontrol survey. However, the same study predicts a dip in GDP growth to a three-year low of 6.2% for the entire fiscal year of 2023-24.
The upcoming release of GDP data by the statistics ministry on August 31 at 5:30 pm is highly anticipated.
The last reported figures showed India’s GDP surging by 6.1% during January-March and an impressive 13.1% in April-June 2022. In the previous fiscal year 2022-23, the economy had achieved a growth rate of 7.2%.
Kanika Pasricha, an economist at Standard Chartered Bank, highlighted, “We anticipate GDP growth to reach 7.8%, with the potential for an even more optimistic 8% figure. This surge is fueled by robust domestic demand, coupled with substantial government investments. Nevertheless, net exports might have a dampening effect.”
The Indian government’s ambitious capex target of Rs 10 lakh crore for 2023-24 has propelled significant investments, with Rs 2.78 lakh crore deployed in April-June, marking a remarkable 59% increase from the same period last year. Although the favorable base effect plays a role, strong demand for services remains a driving force.
ICRA, a leading ratings agency, estimates that the gross value-added (GVA) of the services sector witnessed a substantial rise of 9.7% in April-June, surpassing the 6.9% growth recorded in January-March. This growth is reflected across various high-frequency indicators, ranging from 0.3% (telephone subscribers) to 18.6% (domestic airlines passenger traffic). However, certain sectors like commercial vehicles and air cargo experienced declines.
The estimated GDP growth for April-June varies, with ICRA and Sunidhi Securities projecting the highest at 8.5%, while Societe Generale estimates 6.7%. The manufacturing sector is expected to recover with a growth rate between 5% and 8%, a significant improvement from the average growth of 1.2% over the last six quarters. The agricultural sector, another significant contributor to the economy, is predicted to sustain growth at a rate of 4-4.5%, a drop from the 5.5% achieved in January-March.
Considering the 7.7% growth rate, economists’ expectations are slightly lower than the Reserve Bank of India’s (RBI) forecast of 8%. A consensus also prevails for the full-year growth figure, which stands 30 basis points below both the government and RBI’s projection of 6.5%. With strong domestic demand likely to be revealed by the GDP data, experts anticipate that the RBI’s Monetary Policy Committee (MPC) will maintain the repo rate at 6.5% for the coming months, considering the impact of tighter monetary conditions and weakening export performance.
Barclays’ economists predict, “Rate cuts are unlikely at this point, and the RBI is expected to maintain the status quo for the fiscal year, unless a significant growth shock prompts a change in approach.”
Looking beyond April-June, the RBI predicts a notable slowdown in GDP growth to 6.5% in July-September, followed by 6% in October-December, and 5.7% in January-March 2024 as the favorable base effect gradually diminishes.