Indian Economy Set To Continue Growth In Q3, GDP Forecast For FY24 At 6.5%: CEA

The GDP numbers for the second quarter of FY24 stood at 7.6 per cent and were released on Thursday, and came as a surprise to analysts and the banking regulator.

Indian economy will continue its growth momentum in the third quarter of the current fiscal year and is expected to clock a 6.5 per cent growth rate for the full year helped by investment and consumer momentum, Chief Economic Advisor, V Anantha Nageswaran, said on Thursday. 

The official noted that India is ‘underestimating’ the economy’s GDP growth, ‘while forecasting a 6.5 per cent expansion for the full fiscal as is evident from the tax buoyancy that the country is witnessing on the back of high tax revenue collection due to strong corporate and bank balance sheet’, reported PTI.

Notably, the Indian economy logged a growth rate of 7.2 per cent in 2022-23. The Reserve Bank of India (RBI) forecasted a growth rate of 6.5 per cent for the 2023-24 fiscal year. The GDP numbers for the second quarter of FY24 were released on Thursday and came as a surprise to analysts and the banking regulator. The GDP growth rate for Q2FY24 stood at 7.6 per cent. 

“Indian economy is maintaining a steady momentum since recovery from Covid and remained the fastest growing major economy in the July-September quarter as well,” Nageswaran stated while addressing the media. 

The advisor further explained, “When you have a tax buoyancy which is as high as 1.9 or close to 2, which is historically unprecedented, then it is quite possible that we are not measuring the economy's underlying momentum… We will keep the GDP growth estimate for the full fiscal at 6.5 per cent but we are more comfortable (with the projection) than before…We need to work out the impact of second quarter numbers on full fiscal. The momentum of economic growth will continue in the third quarter as well.”

The Ministry of Finance shared a post on social media platform X and said, “Real GDP growth clocked 7.6 per cent in Q2 FY 2023. The real GDP growth has surprised on the upside by not only being higher than the median projections of 6.8 per cent by professional forecasters but also their highest estimate of 7.4 per cent.”

Nageswaran further noted that investment and consumer momentum would drive robust growth potential in the current and upcoming fiscal year. He stated that the private sector is set to keep investing in the economy owing to the strength of corporate and bank balance sheet. “The combined order books of capital goods and engineering firms surpassed Rs 8 lakh crore in the second quarter of FY'24… Private sector capital formation is not an aircraft that is waiting for take off but has already started to move and fly,” he said. 

Regarding the investment activity of the private sector, the official stated that factors like the increase in the import of capital goods and the boosted production of capital infrastructure goods indicate an upward trend. Citing the Reserve Bank’s monthly bulletin of November, Nageswaran added that the fundraisings from the private sector were 60 per cent higher in the first half of FY24, against the latter half of FY23. The tax revenue growth in the current fiscal so far stood at 16.3 per cent, while the nominal GDP growth was 8.6 per cent, the data revealed. 

“The budget assumed nominal GDP growth of 10.5 per cent and revenue growth also around same level. These numbers tell us that we are probably underestimating our GDP growth and economic activity. India's GDP growth figure may be, based on current statistics, we may be understating (the GDP growth) them, rather than over-stating them,” Nageswaran stated. 

At the same time, the IMF, World Bank, and other analysts like Fitch estimate Indian GDP to clock a growth rate of 6.3 per cent in the current fiscal year, while S&P Global Ratings projected a growth rate of 6.4 per cent for India in FY24.