India Rating Raises FY24 GDP Estimates To 6.2% On Govt Capex, Flags Global Market Risks

The domestic ratings agency attributes a number of factors supporting the economic recovery such as sustained government capex and a deleveraged balance sheet of the corporates/banking sector.

India Ratings and Research (Ind-Ra) has revised its GDP growth estimate for the financial year 2023-24 (FY24) to 6.2 per cent from earlier 5.9 per cent. The domestic ratings agency attributed a number of factors supporting the economic recovery such as sustained government capex, a deleveraged balance sheet of the corporates/banking sector, the likelihood of subdued global commodity prices, and the prospect of a new private corporate capex cycle.

However, it also said that there are constraints such as exports facing global headwinds and recorded negative growth in first quarter of FY24.

"The International Monetary Fund expects the global GDP growth to fall to 3.0 per cent both in 2023 and 2024 from 3.5 per cent in 2022. 10 per cent deficit in monsoon rainfall by end-August 2023 is expected to pose a new challenge to the economy. Tighter financial conditions have led to rise in the interest rate/ cost of capital, and industrial growth especially manufacturing growth continues to be tepid," said India Ratings on Wednesday. 

"All these risks will continue to weigh and restrict India's GDP growth to 6.2 per cent in FY24, and the quarterly GDP growth, which came in at 7.8 per cent in the June quarter, is slated to slow down sequentially in the remaining three quarters of FY24," India Ratings principal economist Sunil Kumar Sinha said.

The Reserve Bank of India (RBI) estimates the overall FY24 GDP to come in at 6.5 per cent. Notably, in FY23, the economy had grown at 7.2 per cent.

Ind-Ra expects the private final consumption expenditure (PFCE) to grow 6.9 per cent in FY24 as against 7.5 per cent in FY23. 

As per the agency's calculation, a 1 per cent increase in real wages could lead to a 1.12 per cent increase in the real PFCE, and the multiplier effect of this could result in a 64 basis points increase in the GDP growth.

"The data shows that the real wage growth of households belonging to the lower income bracket has been negative since 4QFY21 and became marginally positive only 3QFY23. On the other hand, the real wage growth of households belonging to the upper-income bracket rose in the range of 9.5 per cent to 12.7 per cent during 1QFY22 to 4QFY23," the agency said. 

There are some green shoots visible on the private capital expenditure front, the agency said, citing a recent Reserve Bank of India paper.

The agency said while exports are facing headwinds, the services sector recovery is on track.  It, however, called out monsoon rainfall and industrial growth as "areas of concern". 

Retail inflation will soften, and the headline CPI will come at 5.5 per cent in FY24, the agency said, adding that financial conditions will remain tight. 

The agency said meeting the 5.9 per cent fiscal deficit target will be a challenge for the government, pointing at the gross tax collection growth at just 2.8 per cent in the first four months of the fiscal year as against a 10.4 per cent estimated in the Budget.