The Reserve Bank of India has retained its GDP growth forecast at 6.5 per cent for FY2023-24 on robust domestic demand, rising business optimism, investment activity gained further steam on the back of government capital and revival in private capex in certain key sectors.
“Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent. Real GDP growth for Q1:2024-25 is projected at 6.6 per cent. The risks are evenly balanced,” RBI Governor Shaktikanta Das said unveiling the Monetary Policy review.
RBI MPC’s GDP Forecast
| Quarter | Current | Previous |
| FY24 | 6.5% | 6.5% |
| Q1 | 8.0% | 8.0% |
| Q2 | 6.5% | 6.5% |
| Q3 | 6.0% | 6.0% |
| Q4 | 5.7% | 5.7% |
Looking ahead, these underlying developments and the upcoming festival season are expected to provide support to private consumption and investment activity, he said, adding, that the spillovers emanating from weak external demand and protracted geopolitical tensions, however, pose risks to the outlook.
Buoyant domestic economy
The momentum of overall economic activity in India continues to be positive. On the supply side, crop sowing has picked up with steady progress in the south-west monsoon. The temporal and spatial distribution of monsoon has, however, been uneven. Industrial activity is holding ground as is evident from the latest data on index of industrial production (IIP), core industries output and purchasing managers’ index (PMI) for manufacturing, Das said.
Buoyant services activity is reflected in healthy expansion in e-way bills, toll collections, railway freight and a sharp jump in services PMI. On the other hand, commercial vehicle sales and domestic air cargo traffic contracted during Q1: 2023-24.
Aggregate demand conditions continue to be buoyant. Among urban demand indicators, domestic air passenger traffic, passenger vehicle sales and households’ credit are exhibiting sustained growth. In the case of rural demand, tractor and fertiliser sales improved in June while two-wheeler sales moderated. High growth in agricultural credit and improving sales volume of major fast moving consumer goods (FMCG) companies suggest incipient recovery in rural demand, which will be reinforced by improving kharif prospects.
The CAD situation
India’s current account deficit (CAD) was contained at 2.0 per cent of GDP in 2022-23 as compared with 1.2 per cent in 2021-22. Merchandise trade deficit has narrowed in Q1 of 2023-24 with contraction in imports exceeding contraction in exports. “Services exports and remittances are, however, expected to provide cushion to the current account deficit. We, therefore, expect CAD to remain eminently manageable during the current financial year also,” he said.
Investment activity
Investment activity gained further steam on the back of government capital expenditure, rising business optimism and revival in private capex in certain key sectors.Continued increase in import and production of capital goods further reaffirms this trend. Construction activity also remained strong in Q1 as indicated by healthy growth in cement production and steel consumption. “Capacity utilisation in the manufacturing sector at 76.3 per cent (and 74.1 per cent on seasonally adjusted basis) remained above the long-term average of 73.7 per cent. The total flow of resources to the commercial sector from banks and other sources taken together has increased by Rs 7.5 lakh crore during the financial year 2023-24 so far (up to July 28) as compared with Rs 5.7 lakh crore a year ago,” Das said. On the downside, merchandise exports and non-oil non-gold imports contracted further in June and the growth in services exports decelerated amidst slowing external demand, he added.
