Ind-Ra revises up India’s FY24 GDP growth estimate to 6.7% on resilient economy, sustained govt capex

Citing resilient economy, sustained government capex and prospect of a new private corporate capex cycle, India Ratings and Research (Ind-Ra) has revised up India’s Gross Domestic Product (GDP) growth estimate for current fiscal (FY24) to 6.7 per cent, from earlier 6.2 per cent. It flagged weak global growth and trade as risks which weighed down the growth estimates, besides volatile geopolitical situation. It said ‘All these risks will continue to weigh on and restrict India's GDP growth to 6.7 per cent in FY24. The quarterly GDP growth, which came in at 7.8 per cent YoY and 7.6 per cent YoY in 1QFY24 and 2QFY24 respectively, is slated to slow down sequentially in the remaining two quarters of FY24’.

It said the revision in growth forecast has been led by a number of factors -- the resilience of the Indian economy; sustained government capex; deleveraged balance sheet of corporates/banking sector; prospect of a new private corporate capex cycle; and sustained momentum in business and software services exports, coupled with remittances from the rest of the world. Highlighting that consumption demand is not broad based, Ind-Ra said wage growth is critical for consumption growth. Ind-Ra's calculation shows that a 1 per cent increase in real wages could lead to a 1.12 per cent increase in the real private final consumption expenditure (PFCE) and the multiplier effect of this could result in a 64 basis point increase in the GDP growth. However, the data shows that the real wage growth of households belonging to the lower income bracket was marginally negative in second quarter (July-September) of current fiscal. On the other hand, the real wage growth of households belonging to the upper income bracket grew 6.4 per cent YoY in the second quarter of FY24.

The agency expects PFCE, which denotes money spent by individuals on goods and services for personal consumption, to grow 5.2 per cent year on year in current fiscal, as against 7.5 per cent in last fiscal. The PFCE growth which increased to 6 per cent in the first quarter, again declined to 3.1 per cent YoY in second quarter of current fiscal. However, PFCE growth in the second half (October-March) will benefit from the base effect. Last year in October-March period PFCE growth was 2.5 per cent. With regard to inflation, it expects the average retail and wholesale inflation to come in at 5.3 per cent and 0.6 per cent, respectively, in FY24. Ind-Ra believes unless the inflation stabilises around 4 per cent mark, the RBI might not go for monetary easing and therefore remain in the pause mode on the repo rate front in the near term.