Q1 Preview: Economists Estimate India's Quarterly Growth May Exceed RBI's Projections

In its monetary policy review earlier this month, the RBI estimated a 6.5 per cent GDP growth for the fiscal year 2023-24 and an 8.0 per cent Q1 growth

Economists polled by various agencies have estimated that India's first-quarter economic growth could surpass the RBI's forecasts.

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National Statistical Office (NSO) is scheduled to release the GDP data for the April-June quarter of the current financial year 2023-24 (Q1 FY24) on Thursday. Economists polled by various agencies have estimated that India's first-quarter economic growth could surpass the RBI's forecasts. This optimistic outlook is backed by increased government capital spending and enhanced investment undertakings among other factors. 

Notably, After experiencing a decline for three consecutive quarters, the Gross Domestic Product (GDP) growth rate rebounded, reaching 6.1 per cent in the January-March period. For the entire FY23, the growth rate came in at 7.2 per cent. During the April-June 2022, a robust 13.1 per cent GDP growth rate was reported as the baseline was in the process of returning to normalcy following the disruptions caused by the COVID-19 pandemic.

In its monetary policy review earlier this month, the RBI estimated a 6.5 per cent GDP growth for the fiscal year 2023-24 and an 8.0 per cent Q1 growth. The central bank highlighted that challenges stemming from sluggish global demand, fluctuations in worldwide financial markets, geopolitical conflicts, and geoeconomic divisions, all of which present potential risks to the economic forecast. 

“Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent, with risks broadly balanced. Real GDP growth for Q1:2024-25 is projected at 6.6 per cent,” it said.

Here Is What Economists Estimate 

According to rating agency ICRA, the projected year-on-year (YoY) GDP growth for Q1FY24 is set to advance to 8.5 per cent, up from the 6.1 per cent recorded in Q4FY23. This surge is attributed to the favorable base in the corresponding quarter of the previous year, when the Indian economy was in the process of recovery and normalization following the impacts of the Covid-19 pandemic, as per the agency. ICRA expects the GVA (gross value added) growth at 8.1 per cent in Q1FY24 against 6.5 per cent in Q4FY23), driven by the recovery in the services sector (+9.7 per cent versus +6.9 per cent).

"Economic activity in Q1FY24 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure. Moreover, sharply lower prices of various commodities on a YoY basis supported margins in some sectors. However, unseasonal heavy rains, the lagged effect of the monetary tightening and weak external demand exerted downward pressure on GDP growth," said Aditi Nayar, Chief Economist, Head of Research and Outreach at ICRA.

On the other hand, economists at SBI have pegged India’s economic growth for the June 2023 quarter at 8.3 per cent. They expect total FY24 growth to be higher at 6.5 per cent.

Barclays has estimated Q1 GDP growth at 7.8 per cent, as per an Indian Express report. Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said, “Some drag to growth is expected from weaker momentum in mining, and exports, the latter given external headwinds and ebbing reopening demand. We think robust domestic demand is anchoring economic growth, with strong momentum in areas such as construction, underpinned by government capex … this should ensure that growth remains anchored close to trend levels, giving enough room for RBI to be on a long pause."

According to a Reuters poll, India's economic growth is expected to be 7.7 per cent in the April-June quarter. Out of the 51 economists surveyed between August 18 and August 24, all but two anticipated that the GDP growth would surpass the 6.1 per cent rate recorded in the January-March quarter. Forecasts varied within a range of 5.6 per cent to 9.1 per cent.

Notably, the service sector reached a 13-year peak in growth in July, as indicated by a private survey, the news agency said. During the Q1 FY24, capital expenditure rose to approximately Rs 2,785 billion, up from the Rs 1,750 billion spent in the same period of the last fiscal year.

Economists emphasised that India needs even higher growth rates to address the employment needs of its vast population of unemployed youth, the report noted.