ICRA Ratings recently released a comprehensive report projecting a robust economic growth for India in the first quarter of the fiscal year 2023 (FY24). The report suggests that the country’s Gross Domestic Product (GDP) growth is expected to accelerate to 8.5% during the April-June period, a significant increase from the 6.1% growth rate witnessed in the preceding quarter (January-March). This projected growth is attributed to multiple factors, including a supportive base effect and a notable recovery in the services sector.
The projected growth of 8.5% for Q1 FY24 is primarily attributed to two key factors:
Supportive Base Effect: The growth rate is expected to receive a boost from a supportive base effect, meaning that the comparison is made against a lower growth rate in the same period of the previous year.
Services Sector Recovery: The services sector, a significant contributor to India’s economy, is anticipated to exhibit a noteworthy recovery. The report indicates that a continued catch-up in services demand and improved investment activity have positively impacted growth.
Although ICRA’s growth projection of 8.5% for Q1 FY24 is higher than the Reserve Bank of India’s (RBI) forecast of 8.1%, the report does highlight potential challenges in the second half of the fiscal year:
Upcoming Headwinds: The report anticipates headwinds in the latter half of the fiscal year, which could potentially dampen the overall growth trajectory.
Factors Contributing to Headwinds: Factors such as erratic rainfall patterns, narrowing differentials with commodity prices compared to the previous year, and a potential slowdown in government capital expenditure as the country approaches parliamentary elections are identified as challenges to sustained growth.
ICRA’s Chief Economist, Aditi Nayar, maintains her estimate of 6% real GDP growth for the full fiscal year FY24, which is slightly lower than RBI’s forecast of 6.5%. The reasons for this estimate include:
Risks to Growth: The aforementioned headwinds, including uncertain monsoon patterns and potential disruptions related to commodity prices, are expected to limit the overall growth rate.
Services Sector Growth: The report highlights a robust growth in the services sector, with services’ gross value added growth estimated to rise to 9.7% in Q1 FY24 from 6.9% in Q4 FY23. Notably, 11 out of 14 high-frequency indicators related to the services sector recorded positive growth during the quarter.
Government Capital Expenditure: The report indicates a substantial increase in the aggregate capital outlay and net lending of 23 state governments and the Government of India for Q1 FY24. These figures show a growth of 76% and 59.1% respectively, indicating increased capital expenditure.
Capex-related Borrowings: External commercial borrowings for capital expenditure, aimed at modernization and new projects, saw a significant increase in Q1 FY24, surpassing the levels of the entire FY23.
Commodity Price Impact: Lower prices of various commodities have expanded profit margins in certain sectors, contributing to the growth observed during the quarter.
Find More News on Economy Here
World AIDS Vaccine Day, also known as HIV Vaccine Awareness Day, is observed annually on…
The Indian government has announced plans for public sector companies like Coal India, NMDC, and…
In April, India's merchandise exports saw a modest 1% increase, reaching $34.99 billion, driven by…
The Open Network for Digital Commerce (ONDC), a digital infrastructure initiative launched in 2021, has…
In response to rising credit demand and falling liquidity, State Bank of India (SBI) has…
The Indian Army is poised to elevate its air defense capabilities with the impending delivery…