The government released economic growth figures for the January-March quarter on Wednesday. GDP growth of 6.1 per cent in the fourth quarter, significantly higher than the 4.4 per cent recorded in the October-December quarter left many pleasantly surprised.
The strong growth in the last quarter of 2022-23 financial year pushed the annual growth rate to 7.2 per cent, still lower than the 9.1 per cent growth in the previous financial year. Several economists have now upgraded their forecasts for the current financial year. However, even as the economy is expected to be on a stronger footing, the growth is expected to be uneven and the expected growth rates vary significantly.
Strong demand in the services sector was a key driver of the GDP growth. While the construction sector grew 10.4 per cent in the March quarter, trade, hotels, transport and communication services saw a 9.1 per cent growth. Finance, real estate and professional services also grew 7.1 per cent.
Manufacturing sector too saw a strong recovery, rising 4.5 per cent after contracting in the previous two quarters. Agriculture sector too saw a 5.5 per cent growth. However, private consumption remained subdued at 2.8 per cent.
"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 remain supportive of growth in FY24," said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.
Factoring in a pick up in growth momentum, SBI's research team has upgraded its baseline growth forecast to 6.7 per cent from 6.2 per cent.
"Continuing on the path of strong activity in FY23, we project real GDP growth for FY24 at 6.7 per cent with Q1 at 7.8 per cent, Q2 at 6.5 per cent , Q3 at 6.3 per cent and Q4 at 6.2 per cent, amid broadly balanced risks," said Ghosh.
Economists at Nomura Securities also have raised their GDP growth forecasts for the financial year ending March 2024 as well as for calendar 2023. But, their growth projections are much lower than that of the SBI's research team.
Nomura expects GDP to grow at 5.5 per cent in 2023-24, versus their earlier expectation of a 5.3 per cent growth. For calendar 2023, the forecast has been raised to 5.9 per cent from 5.0 per cent.
A lot of how India's economy grows will also be dependent on how global growth pans out. In the backdrop of a sharp rise in interest rates in a major economies, growth has already slowed and is reflecting in subdued outlook for sectors like software services exports.
"In our view, global growth slowdown will weigh on goods exports and signals of a slowdown in IT services points to downside in services exports. Lower inflation should support rural consumption, but we expect urban discretionary consumption to flat line, reflecting lagged rate hike effects. Weak global demand, high levels of uncertainty, elevated real rates and a slowdown in tax collections (especially in second half FY24) are also likely to weigh on aggregate capex," said Sonal Varma, chief economist (India and Asia ex-Japan), Nomura Securities.
How the monsoon rains pan out this year will also have to be closely watched over the next few months as this will have a bearing on rural demand. Unseasonal heavy rainfall in many parts of the country has already impacted agriculture activity in recent months.
Credit ratings agency ICRA has projected India's GDP to grow 6 per cent in 2023-24. But, there is a downside risk of up to 50 bps to GDP growth in the event that an El Nino affects the monsoon, said Aditi Nayar, chief economist at ICRA.
On the other hand, frontloaded capital expenditure by centre and states as well as rapid execution of infrastructure projects could provide an upside to GDP growth forecasts, she said.
Other things like the impact of higher interest rates on consumption and discretionary purchases need to be watched out too.
"Inflation is expected to moderate in FY2024 relative to FY2023 which is a positive for household budgets and consumption. However, 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 Nino on crops, food prices and farm incomes remains to be seen," said Nayar.
