NEW DELHI: India’s economy is likely to grow a better-than-expected 7.3% in FY24, faster than all major global economies, powered by a double-digit rise in investments, led by government spending, official data released on Friday showed.
The first advance estimate of gross domestic product (GDP) is higher than the Reserve Bank of India’s 7% forecast for the year and ahead of the 7.2% expansion in FY23.
“Despite global headwinds, the growth momentum witnessed in FY24 is indicative of the Indian economy’s resilience,” according to an India Ratings note by economists Sunil Kumar Sinha and Paras Jasrai. In nominal terms, GDP is projected to rise by only 8.9%, lower than the government’s 10.5% growth assumed in the budget. “The first advance estimates of FY24 show no let-up in growth momentum in the economy. Resilience and strength of the economy underpinned by reforms of the last nine years have laid the foundations for the economy to sustain a healthy growth rate in the coming years,” the finance ministry posted on social media platform X.
“These are early projections for 2023-24,” the National Statistical Office (NSO) said in a statement, noting that improved data coverage, actual tax receipts and spending on state subsidies would have a bearing on subsequent revisions.
Some experts said consumption needs to pick up for the momentum to be maintained.
“Consumption is 300 bps below GDP growth and investment is 300 bps above GDP growth,” said Pronab Sen, former chief statistician of India. “That’s too large a difference to sustain for a long period. Consumption should be growing at just under the GDP growth and investments must be growing 200 bps. That is the sweet spot.”
The lower agriculture growth expected in the second half is also a cause for concern, Sen noted.
The Indian economy grew 7.7% in the first half, beating estimates and prompting economists to revise their growth forecast upward. The government estimates suggest that the economy will grow 6.9% in the year’s second half, spurred by higher investment and manufacturing.
Economists noted that the 10.3% growth seen in gross fixed capital formation (GFCF), a proxy for investment, reflects the sustained focus of the government on capex.
“This is more heartening because it has come on the high base of FY23, whereby GFCF had grown 11.4% YoY,” the Ind-Ra economists said.
The investment rate, or GFCF as a proportion of nominal GDP, is expected to rise to a nine-year high of 29.8% in FY24, compared with 29.2% in the previous year.
“Although green shoots are becoming visible in private corporate capex, the heavy lifting is being done by the government capex, which indeed is providing the necessary support to the ongoing recovery,” Ind-Ra said.
Experts pointed out that on the production side, most of the spurt is expected to come from the non-agricultural sector. “While agriculture growth slowed markedly to 1.8% from the 4% last fiscal, the non-agriculture momentum more than offset its impact,” said DK Joshi, chief economist, Crisil. “Within this, industry, especially construction, has emerged as an important driver, while services have seen a moderation.”
Some economists are sceptical about the 7.3% projection given slowing capex and farm prospects. “The growth assumed for H2FY24 is quite high, given the tepid outlook for agriculture amidst the weak kharif output and ongoing lag in rabi sowing, as well as the feared temporary slowdown in capex ahead of the general elections,” said Aditi Nayar, chief economist, Icra.
Source: The Economic Times
