India’s economic growth is likely to accelerate to around 8.5% in April-June 2023 period as compared to 6.1% recorded in the previous quarter, led by robust expansion in the services sector, research reports showed.
According to a research paper by SBI, the robust growth in the first quarter would push the whole fiscal economic expansion to above the budgetary projection of 6.5%. SBI Research has pegged the first quarter growth for the current financial year at 8.3%, while ICRA has projected it to be 8.5%.
The Q1 growth projections by both the agencies are higher than the Reserve Bank of India’s estimate of 8%. In its latest monetary policy review announced earlier this month the RBI pegged GDP growth for the current financial year at 6.5% with Q1 at 8%; Q2 at 6.5%; Q3 at 6%; and Q4 at 5.7%. The official GDP data for Q1 of the current financial year is slated to be announced at the end of this month.
“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,” said Aditi Nayar, Chief Economist, ICRA.
SBI Group Chief Economic Adviser Soumya Kanti Ghosh noted in a report that higher capital expenditure is likely to boost GDP growth in April-June quarter. There was a surge in capital expenditure in the first quarter of the current fiscal, with the central government spending 27.8% of the budgeted, while states at 12.7% of budgeted. States like Andhra Pradesh, Telangana, Madhya Pradesh where elections are due, have registered capital expenditure growth up to 41%.
According to ICRA, services sector growth is likely to jump to 9.7% in April-June quarter from 6.9% recorded in the previous quarter. Industrial growth is likely to accelerate to 7.3% in Q1 of 2023-24 from 6.3% in the previous quarter. However, agriculture sector growth is estimated to fall to 4% in April-June quarter from 5.5% recorded in January-March period.
“We are circumspect that erratic rainfall, narrowing differentials with year-ago commodity prices, and possible slowdown in momentum of Government capex as we approach the Parliamentary elections, could dampen GDP growth in H2 FY2024 below the MPC’s forecasts,” said Nayar.
Overall, we maintain our FY2024 GDP growth estimate at 6.0%, lower than the MPC’s projection of 6.5% for the fiscal, she added.
Recently, the IMF raised India’s growth projection for 2023 to 6.1%, a 0.2 percentage point upward revision compared with the April projection, due to stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.
In Q1FY24, manufacturing is sustained as reflected in better IIP, automobile sales, PMI data etc. Further, agriculture sales have been strong and power supply has been high. On the services side, passenger traffic picked up in Q4FY23 has sustained while air cargo traffic increased, SBI Research noted in its Ecowrap report.