Economic Outlook For FY24 Remains "Bright", Finance Ministry Comfortable With 6.5% GDP Estimate

High-frequency indicators suggest that the second quarter of FY24 is shaping up well too, said the Ministry of Finance, adding that it estimates real GDP growth for FY24 at 6.5 per cent.

The Monlty Review also cautioned regarding the potential risks going ahead, including the monsoon deficit, rising crude oil prices, and a possible stock market correction. 

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India’s economic outlook for the financial year 2023-24 (FY24) remains "bright" and the second quarter is shaping up well too, the Ministry of Finance said in its Monthly Economic Review on Friday. The Economic Review for August 2023 by the Finance Ministry kept its real gross domestic product (GDP) growth in 2023-24 (FY24) unchanged at 6.5 per cent. However, the report also cautioned regarding the potential risks going ahead, including the monsoon deficit, rising crude oil prices, and a possible stock market correction. 

“India’s economic outlook for FY24 remains bright. Economic activity maintained its momentum. HFIs (high-frequency indicators) suggest that the second quarter of FY24 is shaping up well too. In sum, we remain comfortable with our 6.5 per cent real GDP growth estimate for FY24 with symmetric risks,” the review said.

It noted that the NSO estimates show real GDP growing at 7.8 per cent in the first quarter of FY24. Strong domestic demand for consumption and investment drove the GDP growth in this quarter. A steady decline in the urban unemployment rate contributed to keeping private consumption strong in the economy. 

Regarding the banking sector, it said, "A variety of indicators suggest increasing resilience of the sector through declining Non-Performing Assets (NPA), improving Capital Risk-weighted Asset Ratio (CRAR), rising Return on Assets (RoA) and Return on Equity (RoE) as of March 2023. Similarly, as of March 2023, data for Non-Banking Finance Companies (NBFCs) indicated improvements in their profitability and risk-taking behaviour."

The restructuring of the balance sheet placed the companies in a sound position to expand their investment and become more resilient to economic shocks, it further noted. The review added that the "healthy performance of the corporate sector has vindicated and strengthened investors’ confidence in the Indian growth story."

The report said that the private sector remained in good health, credited by the data on advance tax payments for the second quarter. 

It noted that the Centre’s capex (capital expenditure) grew year-on-year (YoY) by 59.1 per cent in Q1 FY24. The states' capex also grew at 74.3 per cent YoY in the same quarter. An uptick in public capital investment has begun to crowd in private investment. Import of capital goods witnessed YoY growth of 4.2 per cent during April-June 2023, the report noted. 

On inflation, the report noted that retail inflation decreased in August, with both core inflation and food inflation easing from the July figure. 

"In India, consumer food price inflation eased to 9.9 per cent in August from 11.5 per cent in July. Vegetable inflation increased in July and August due to a sudden increase in the prices of tomatoes and other food items due to crop-specific and weather-related factors. The government intervened with targeted measures for specific crops, including a build-up of buffer, procurement from producing centres, and subsidised distribution," the Finance Ministry said, adding that globally, food inflation remained high in many major economies.

The report also pointed towards risks ahead for the Indian economy. It said, "Crude oil prices are steadily climbing." However, there are "no alarms yet." 

"The monsoon deficit in August could impact both Kharif and Rabi crops. That needs to be assessed. However, it is heartening that rains in September have erased a portion of the rainfall deficit at the end of August," the review said. 

"A stock market correction, in the wake of an overdue global stock market correction, is an ever-present risk," the Finance Ministry further cautioned. It added that the US 10-year bond yield has crossed 4.3 per cent, and the S&P 500 index is not too far from it's all-time high. 

"Offsetting these risks are the bright spots of corporate profitability, private sector capital formation, bank credit growth, and activity in the construction sector," the Finance Ministry said.