India’s resilient economy seen expanding 6.7% in FY24

New Delhi: The Indian economy is likely to grow 6.7% in FY24, according to a median forecast of 11 economists, staying resilient despite external headwinds as domestic demand and improving investments provide support. Prospects have improved from a month ago, when an ET poll pegged the current fiscal year’s expansion at 6.3%.

However, the median is still short of the recent Reserve Bank of India (RBI) estimate. Earlier this month, the central bank raised its forecast for the year to 7%, from 6.5% estimated earlier, following a better-than-expected 7.6% rise in gross domestic product (GDP) in the September quarter.

Growth in the first half of this fiscal year was 7.7%. The government will release the first advance estimates for FY24 on January 5.

The Indian economy registered 7.2% growth in FY23.

“India’s growth has remained largely resilient in the face of external headwinds,” said Rahul Bajoria, managing director and head of EM Asia (ex-China) economics, Barclays.

Last month’s release of second quarter numbers led to a spate of forecast revisions for the fiscal year. Ratings agency Fitch expects the economy to grow 6.9% in FY24, compared with 6.5% projected earlier.”We have revised our GDP growth projection upwards by 50 bps to 6.8% for FY24 owing to the positive surprise on the investment front in second quarter GDP numbers,” said Rajani Sinha, chief economist, CareEdge. A basis point is 0.01 percentage point.The manufacturing sector grew at a nine-quarter high of 13.9% in July-September, whereas gross fixed capital formation – a proxy for investments – grew 11% from a year earlier.

The investment rate – measured as a proportion of GDP in nominal terms -was at 30%, the highest for the second quarter since FY15.

“While there could be some moderation in the second half of FY24 on account of the likely hit to the agricultural sector and postponement of investment plans, overall outlook remains positive on the growth front,” Sinha said.

Data released earlier this month showed industrial production rose 11.7% in October, marking a solid start to the third quarter. Other leading indicators showed manufacturing activity picking up pace in November. Goods and services tax (GST) collection notched up another month of robust growth and auto dispatches hit another record high in November.

RBI predicts growth to slow to 6.5% in the third quarter and 6% in the last one.

Stronger Ahead
The Indian economy is likely to carry forward the momentum next year as well, according to economists. Median forecasts point to 6.3% growth in FY25, with some economy watchers predicting over 6.5% GDP expansion.

“We have been quite positive on India for the last 1.5 years,” said Anjali Verma, chief economist, PhillipCapital India. “We see macro and corporate earnings strengthening even on a rising base. Despite elevated interest rates, most of the macro factors have remained resilient. We expect momentum to remain fairly buoyant in the coming years.” She predicted over 7% growth in FY25 as well.

But economists expect some moderation as external demand weighs on growth and support from input cost pressures fades.

“In FY24, listed company profits were supported by a decline in input cost pressures, which countered the slowdown in sales growth. In FY25, incremental support from lower input costs would be limited,” said Gaura Sengupta, economist, IDFC First Bank.

However, the economists predicted better outcomes on the inflation front, with the median estimate declining to 4.7% in FY25, compared with 5.4% projected for this year.

RBI is expected to start easing monetary policy from the second quarter of FY25, they said.

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