UBS Raises India’s GDP Forecast to 6.3% for FY24

Foreign brokerage UBS recently revised its FY24 real GDP growth estimate for India, raising it to 6.3%. The brokerage’s chief economist, Tanvee Gupta Jain, highlighted various factors contributing to this uptick despite challenges such as slower global growth and upcoming elections.

Factors Driving Growth:

1. Positive Domestic Economic Activities: UBS noted that domestic economic activities in India are performing better than expected, providing momentum to the country’s growth trajectory.
2. Support from Festive Season and Government Spending: The ongoing festive season is expected to boost household spending, coupled with buoyant credit growth. Additionally, the reallocation of government spending towards pro-rural and pro-social schemes ahead of the elections is anticipated to further support growth.
3. Political Stability and Reform Agenda: UBS emphasized that investors’ perception of political stability, particularly regarding Prime Minister Narendra Modi’s potential win in 2024, will significantly influence investment decisions. Political stability is crucial for the continuity of the reform agenda in the country.

Challenges and Watchful Factors:

1. Managing Macro Risks: While optimistic about growth, UBS cautioned about the importance of managing macro risks, indicating potential challenges that could affect India’s economic outlook.
2. General Elections in FY24: The upcoming General Elections in India pose a key factor to watch out for, as they could impact economic policies and investor sentiment.

Long-term Growth Expectations:

1. Settling Towards Long-Run Average: UBS anticipates India’s growth to stabilize around the long-run average of 6.2% in FY26 and FY27, indicating a sustainable growth trajectory in the medium term.
2. Capex Spending and Exports: The brokerage suggested that the pick-up in capital expenditure (capex) spending is likely to become more widespread over time. Additionally, while exports could see marginal improvement, they are expected to remain tepid, contingent upon global growth uncertainties.

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