Q1 GDP growth at fastest pace
STORIES, ANALYSES, EXPERT VIEWS
The economy in April to June likely grew at the fastest pace in a year, bolstered by central and state governments opening up their wallets for capex, stronger consumption demand and higher activities in the services sector, according to some economists.
A median forecast of an ET poll of 20 economists pegged the growth rate at 7.8 per cent for the first quarter of this financial year that started Apr. 1. The estimated range in the poll was 7.5-8.5 per cent. The Reserve Bank of India has forecast a growth rate of 8 per cent.
While India’s GDP grew 6.1 per cent in the March quarter of FY23, it had grown at 7.2 per cent in FY23 as a whole.
Continued improvement in services demand and investment activity, and lower commodity prices spurred growth while unseasonal heavy rains, a lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth in Q1FY24.
Services, the key: According to economists, the services sector likely took the front seat, a trend seen in the last quarter of FY23.
"High-frequency indicators for air and rail travel confirm continued steady demand in the transport sector, although capacity constraints, along with a catchup to pre-Covid levels of activity, mean some moderation in momentum compared with the previous quarter," said Rahul Bajoria, head, EM Asia, ex-China, economics, Barclays. The firm has pegged a growth rate of 7.8 per cent.
India’s services sector growth had hit a 13-year high in July, data from S&P Global PMI showed. ICRA in its report estimated that the services' gross value added (GVA) likely grew 9.7 per cent in Q1FY24 from 6.9 per cent in Q4FY23.
"Economic activity in Q1 FY-2024 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure," noted Aditi Nayar, chief economist at ICRA, while forecasting a growth rate of 8.5 per cent.
Increase in capital expenditure: The government has continued its focus on capital expenditure in recent months. Capital expenditure increased to around Rs 2,78,500 crore during April–June 2023 from the Rs 1,75,000 crore spent during the same period last fiscal year.
The central government likely spent 27.8 per cent of the budgeted amount in Q1, while state governments’ spend was 12.7 per cent. Further, capex spending by the Centre and 23 states (excluding Arunachal Pradesh, Assam, Goa, Manipur and Meghalaya) was up 59.1 per cent and 76 per cent on an annual basis.
States such as Andhra Pradesh, Telangana, and Madhya Pradesh where elections are due saw capital expenditure growth of up to 41 per cent, an SBI Research report showed.
Expectations of FY24: The RBI expects India to grow at 6.5 per cent in FY24. Twenty two economists in the ET poll estimated a median growth of 6.2% for the full year.
"We expect GDP growth to moderate to 6.5% in FY24 from 7.2% in FY23 due to base normalisation, moderation in urban demand, uneven recovery in rural demand and weak external demand," said Rajani Sinha, chief economist, CareEdge.
Uneven monsoon, peppered with El Nino worries is likely to affect India’s consumption revival, in a scenario where global growth rates are slowing.
