India’s economy likely expanded 7.8% in the June quarter, according to the median forecast of an ET poll of 20 economists.
Resilient domestic demand, government capital expenditure and a nascent revival in private investment supported growth in the quarter amid a global slowdown.
The estimated range in the poll was 7.5-8.5%. The Indian economy grew 7.2% in the previous fiscal and 6.1% in the March quarter.
“Overall, the quarter should see broad-based growth, with agricultural value addition, too, riding on the success of 2022-23 rabi output,” said Yuvika Singhal, economist, QuantEco.
The median forecast in the ET poll is less than the Reserve Bank of India’s 8% estimate for the first quarter. The government will release first-quarter GDP data on August 31.
Services boost, manufacturing recovers
The services sector is seen as the most significant contributor to growth in the first quarter, according to economists, with robust construction activity providing support.
Rise in construction activity
“High-frequency indicators for air and rail travel confirm continued steady demand in the transport sector, although capacity constraints, along with a catchup to pre-Covid levels of activity, mean some moderation in momentum compared with the previous quarter,” noted Rahul Bajoria, head, EM Asia, ex-China, economics, Barclays, projecting 7.8% growth in the first quarter.
Government capex – central and state – saw construction activity speeding up.
“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.
The rating agency estimates June quarter growth at 8.5%, lifted by double-digit expansion in gross fixed capital formation.
“Some drag to growth is expected from weaker momentum in mining and exports,” Bajoria said. The latter may be affected by external headwinds and ebbing demand.
Heavy rains that caused logistics and production disruption could have also held back growth.
“Unseasonal heavy rains, the lagged effect of the monetary tightening, and weak external demand exerted downward pressure on GDP growth,” Nayar said.
In the first quarter of FY24, capital spending by 23 states was up 76%, whereas the Centre’s capex was up 59.1%, from last year.
Manufacturing also witnessed robust growth as lower commodity prices helped improve margins amid rising volumes. The growth in corporate activity, however, was not broad-based.
“Corporate performance in the (April-June) quarter pointed to a sharp pick up in profits, though not broad-based. This reflected a cooling-off in input costs, whilst sales growth eased,” said Radhika Rao, senior economist, DBS group.
FY24 outlook
The momentum is unlikely to continue over the coming quarters, as experts said that monetary transmission of higher interest rates and the global slowdown will weigh down growth.
The 22 economists in the ET poll estimated a median growth of 6.2% for the full year, lower than RBI’s forecast of 6.5%.
“We expect GDP growth to moderate to 6.5% in FY24 from 7.2% in FY23 due to base normalisation, moderation in urban demand, uneven recovery in rural demand and weak external demand,” said Rajani Sinha, chief economist, CareEdge.
The spike in food prices, along with an uneven monsoon, could hamper consumption revival, according to economists.
Retail inflation jumped to 7.4% in July, breaching the upper limit of the RBI’s target range of 2-6%, and is likely to stay elevated in August as well.
Private capex revival could support growth. “A resuscitation of the private capex cycle can help catalyse growth further and fast-track India’s ascent to the third largest economy,” said Debopam Chaudhuri, chief economist, Piramal Group.
“While domestic consumption and investment demand are expected to continue driving growth, global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by government and the RBI,” the finance ministry said in its monthly economic report for July.
The economists in the ET poll project inflation to average 5.5% in FY24, slightly higher than RBI’s revised estimate of 5.4%.
