Global Agencies Raise India's FY24 GDP Forecast After Strong Growth In Q1

Data from the MoSPI on Thursday revealed that India's GDP grew by 7.8 per cent in the quarter that ended on June 30, the highest in the last four quarters

Following India's first quarter economic growth data released on Thursday, a number of global financial agencies have raised their FY24 GDP forecast for the country. Moody's Investors Service on Friday raised India's growth projection for the 2023 calendar year to 6.7 per cent. Japan's Nomura and Germany's Deutsche Bank also raised their growth estimate for FY24 by 40 and 20 basis points, respectively. 

Data from the Ministry of Statistics and Programme Implementation (MoSPI) on Thursday revealed that India's GDP grew by 7.8 per cent in the quarter that ended on June 30, the highest in the last four quarters. 

On Friday, Moody’s Investors Service said in its Global Macro Outlook, as per a PTI report, said, "Strong services expansion and capital expenditures propelled India's 7.8 per cent real GDP growth in the second (April-June) quarter from a year ago. We have accordingly raised our 2023 calendar year growth forecast for India from 5.5 per cent to 6.7 per cent. Given the robust underlying economic momentum, we also recognise further upside risk to India's economic growth performance." However, it added, "We have lowered our 2024 growth forecast from 6.5 per cent to 6.1 per cent".

Moody's further added that if El Niño this year proves to be particularly strong in the second half of 2023 and early 2024, agricultural commodity prices could shoot up. Domestic demand in India remains buoyant, and as long as core inflation remains relatively stable, rate hikes are also unlikely. 

Nomura now projects India to grow by 5.9 per cent in FY24, raising the forecast by 40 basis points. Nomura economists Sonal Varma and Aurodeep Nandi in a note, as per a Moneycontrol report, said, "Actual GDP growth in April-June and tracking estimates for July-September are higher than our current baseline. As such, we are raising our 2023 GDP growth projection to 6.3 per cent from 5.9 per cent previously and 2023-24 at 5.9 per cent from 5.5 per cent previously. However, taking into account the weaker global growth outlook in 2024 of 2.3 per cent versus 2.8 per cent in 2023, we are lowering our 2024-25 GDP growth forecast to 5.6 per cent from 6.5 per cent previously."

They said that the bank is cautious for the upcoming quarters. India is currently experiencing an unfortunate period of inadequate and irregular monsoons, with the overall monsoon season registering a 9 per cent deficit, particularly affecting the southern, eastern, and central regions, affecting the planting of Kharif crops, especially pulses, oilseeds, and cotton. Furthermore, it may have repercussions on the yields of Rabi crops later in the year, which rely on reservoirs, they added. 

Deutsche Bank raised India's full year forecast by 20 basis points to 6.2 per cent. According to Deutsche Bank chief economist for India and South Asia Kaushik Das, India's growth is expected to slow in the upcoming quarters of 2023-24. This slowdown can be attributed to several factors, including the delayed effects of monetary policy tightening, a deepening global economic slowdown, the waning of pent-up domestic demand, and potential risks associated with weather-related factors. However, the government's increased capital expenditure efforts and the possibility of heightened private investment as capacity utilisation levels rise may contribute to sustaining a growth rate of approximately 6.2 percent.

Both forecasts fall short of the government's and the Reserve Bank of India's (RBI) estimated growth rate of 6.5 per cent. 

As per the forecasters, economic growth is poised to slow in the upcoming quarters and it is anticipated that the RBI's monetary policy committee will lower the repo rate by 100 basis points in 2024. The initial rate cut is expected to take place in February.

On the other hand, SBI Research Ecowrap on Thursday said that the GDP for Q1 FY24 reaffirmed the resurgence in domestic economic momentum, notwithstanding the ascending global shocks and challenges.

It said that "if one looks at the leading indicators in various niche areas, in particular manufacturing where the EBIDTA growth of exBFSI entities, helped with lower input prices, a robust order book and crowding in of private-led capex has grown handsomely in last quarter by ~15 per cent, sustaining the positive momentum of FY23."