India’s GDP growth pegged at 7.3% for FY24

India GDP Growth FY24 Forecast: The Indian economy is expected to grow by 7.3% in the current financial year, according to the first advance estimate released by the National Statistical Office. This is higher than the previous government forecast of around 7%, which was due to the Reserve Bank of India’s revision of its GDP estimates.

The Indian economy is expected to grow 7.3 per cent on an annual basis in the current financial year, according to the first advance estimate released by the National Statistical Office on Friday. The Indian economy had grown by 7.2 per cent in FY23.

The economy is pegged to grow at 8.9 per cent in FY24 in nominal terms, compared to 16.1 per cent in the previous financial year. The government sees FY24 GVA growth at 6.9 per cent of down from 7 per cent in FY23.

The government sees the manufacturing industry growing at 6.5 per cent in FY24, up from 1.3 per cent registered in FY23. This sector accounts for around 17 per cent of India’s overall GDP.

Agriculture, livestock, forestry & fishing growth, which contributes around 15 per cent to the GDP, is pegged at 1.8 per cent in FY24, down from 4 per cent in FY23.
Growth of trade, hotels, transport, communication & services related to the broadcasting industry has been pegged at 6.3 per cent in FY24, down from 14 per cent in FY23.
The experts and analysts had expected the projected number to be around 7 per cent, higher than the previous government forecast, due to the Reserve Bank of India’s (RBI) revision of its GDP estimates. The RBI had increased its growth forecast in December to 7 per cent for FY24, from an earlier estimate of 6.5 per cent owing to the robust growth in high-frequency indicators.
Another significant factor is the surprising GDP number for the September quarter. The Indian economy grew faster than expected 7.6 per cent year-on-year in the September quarter, after growing 7.8 per cent in the previous quarter, prompting many private economists to upwardly revise their yearly estimates.
“Led by a robust investment growth of 10.3%, the first advance estimates of national income for FY24 show a real GDP growth of 7.3%, positively surprising most observers,” said Dr. D.K. Srivastava, Chief Policy Advisor at EY India.
This does even better than the RBI’s revised growth estimate of 7% as well as the forecasts of the IMF and the World Bank at 6.3% each,” he added.

Talking about the sectoral growth, Economics Srivastava said, “Profile of sectoral growth shows a balanced recovery in all sectors except agriculture.”

“The Government of India has led growth from the front by emphasizing capital expenditure aimed at augmenting infrastructure which has grown by 31% during the first eight months of FY24. The leading growth sectors.

“The Government of India has led growth from the front by emphasizing capital expenditure aimed at augmenting infrastructure which has grown by 31% during the first eight months of FY24. The leading growth sectors are construction showing a growth of 10.7%, financial, real estate and professional services of 8.9%, public administration and defence of 7.7%, and manufacturing of 6.5%,” he said.

“The demand side shows a sluggish performance of consumption growth both private and government at 4.4% and 4.1% respectively.”
“The external sector continues to constitute a major drag on India’s growth with net exports contributing negatively to real GDP growth at 7.3% points,” Srivastava noted.The Chief Policy Advisor at EY India, pinpointed two key challenges in the domestic economic landscape, stating, “On the domestic side, two major weaknesses pertain to annual growth of agriculture at 1.8% and the implicit price deflator (IPD)-based inflation at only 1.4%.”
Emphasizing the impact on nominal GDP growth, he highlighted that “this implies a nominal GDP growth of only 8.9%, which will impact upon the budget magnitudes.”

Dr. Srivastava elucidated the customary relationship between tax buoyancy and nominal GDP growth, revealing that “the budgeted buoyancy of Centre’s gross tax revenues (GTR) was only 0.99, which would imply a tax revenue growth of 8.8%, well below the budgeted GTR growth of 10.4%.”
However, expressing optimism based on CGA data, he anticipates that “the Government of India will meet its budgeted fiscal deficit target for FY24,” citing a much higher direct tax buoyancy than initially assumed in the budget.
“Growth forecasts for India were upgraded following the positive surprise in the second quarter, which lifted the first-half print to 7.7%. Now the first advanced estimate pencils in a GDP growth of 7.3% for this fiscal. This implies the second half will see a tad slower number of 6.9%,” said Dharmakirti Joshi, Chief Economist, CRISIL Ltd on GDP data.

“Net-net, we expect the pace of India’s economic growth to slow next fiscal as high interest rates and slowing global growth bite,” he added.
How is the first advance estimate of GDP computed?
The first advance estimate is the first GDP estimate provided by the government in January, using the benchmark indicator method and relying on the provisional data from high-frequency indicators. The government uses last year’s numbers as a benchmark to check how some of the high-frequency indicators have performed in the first two or three quarters of the fiscal year. It relies on provisional numbers of consumer inflation, index of industrial production (IIP), revised estimates of fiscal number.

How does it help?

The system of first advance estimates was introduced in 2016-17 to help with the budget exercise. The numbers from FAE are used to compute budget numbers as a proportion of GDP. It also helps the government estimate the nominal GDP for the next year, which, in turn, helps determine budget targets for the coming fiscal. The nominal GDP estimated in the budget 2023-24, for instance, was 10.5%, and the first advance estimate due on Friday will provide a gauge if the government is closer to reaching ..

The second advance estimate for FY24 is due to be released on February 29, 2024.

What is ‘Fiscal Deficit’

Definition: The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.Description: The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.
A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

Source : Economics Times 5 January 2023