The Reserve Bank of India (RBI) has announced its economic activity index nowcast, forecasting a strong GDP growth rate of 7.6% for the first quarter of the fiscal year 2023-2024 (Q1 FY24). The central bank’s analysis indicates that India’s domestic economic conditions have sustained the momentum witnessed in the previous quarter of FY23. The overall economic activity, as captured by the RBI’s index, remains resilient. This article delves into the key factors contributing to this positive outlook and highlights the potential areas of growth.
Resilient Economic Activity
The RBI’s economic activity index reflects a sustained quickening of momentum in India’s domestic economic conditions. Despite the challenges posed by the pandemic, the country’s overall economic activity has shown resilience. Partial data available for April 2023, coupled with an assumed GDP growth rate of 5.1% for Q4 FY23, has led to the projection of a robust 7.6% GDP growth for Q1 FY24, according to the RBI’s monthly bulletin.
Strong Corporate Earnings
Corporate earnings in India have surpassed consensus expectations, with notable performance seen in the banking and financial sectors. These sectors have been bolstered by robust credit growth, contributing to strong revenue performance overall. The positive performance of corporate earnings is a key driver of the projected growth in the first quarter of FY24.
Private Consumption and Manufacturing
The RBI anticipates that growth in the first quarter of FY24 will be primarily driven by private consumption. Reviving rural demand and renewed buoyancy in manufacturing, aided by the easing of input cost pressures, are expected to support this growth. Lead indicators, such as mandi arrivals and cumulative procurement of wheat, indicate the possibility of a record-breaking rabi harvest, which would provide a significant boost to the rural economy.
Record-Breaking Rabi Harvest
The central bank highlights that based on current indicators, the rabi harvest may achieve a new record in terms of production. This anticipated record harvest is expected to contribute substantially to the rural economy, providing a further stimulus to overall economic growth. Mandi arrivals of paddy during the Kharif marketing season have reached their highest level in eight years. Although mandi prices of paddy remain slightly lower than the minimum support price, retail prices are showing an upward trend, complemented by positive global rice prices and an increase in India’s rice exports.
Improvement in Investment Activity
The RBI expects investment activity to improve, primarily driven by increased capital expenditure in public spending and a moderation in commodity prices. With manufacturing capacity utilization at trend levels, private capital spending will play a crucial role in adding additional capacity as demand continues to pick up. This investment boost is poised to further strengthen the overall economic growth trajectory.