India Ratings and Research (Ind-Ra) has revised upwards India’s gross domestic product (GDP) growth estimate for FY24 to 6.7 per cent from earlier 6.2 per cent, citing a number of factors including the resilience of the Indian economy, which grew 7.6 per cent in the second quarter of FY24.
According to Ind-Ra, the other factors that will boost the growth are: sustained government capex, deleveraged balance sheet of corporates/banking sector, the prospect of a new private corporate capex cycle, and sustained momentum in business and software services exports, coupled with remittances from the rest of the world despite global headwinds. However, it said there are risks to the global growth. The World Trade Organization (WTO) expects the world merchandise trade volume to have grown only 0.8 per cent as against the expected 1.7 per cent in 2023. However, WTO expects world merchandise trade volume to grow 3.3 per cent in 2024.
The International Monetary Fund (IMF) expects the global growth to slow down to 2.9 per cent in 2024 (2023: 3 per cent), lower than the pre-pandemic average growth of 3.8 per cent (2000-19). While the IMF expects the growth decline in emerging markets and developing economies in 2023 to have been only 10 bps in 2023 at 4 per cent (2022:4.1 per cent), it has been sharper in advanced economies at 110 bps to 1.5 per cent (2.6 per cent), it said.
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The IMF further expects the growth in advanced economies to slow down to 1.4 per cent in 2024 as the monetary policy tightening pursued by the central banks in these countries will continue to bite.
However, the tighter monetary policies would translate in to global inflation declining to 6.9 per cent in 2023 and 5.8 per cent in 2024 (2022: 8.7 per cent). Another risk that may impact the global growth and trade especially through disruptions in the supply chain is the volatile geopolitical situation — the Baltic Dry Index jumped to a six-quarter high of 2,079 in Q3FY24 from 1,194 in Q2FY24, it said.
“All these risks will continue to weigh on and restrict India’s GDP growth to 6.7 per cent in FY24 (FY23: 7.2 per cent). The quarterly GDP growth, which came in at 7.8 per cent and 7.6 per cent in Q1 of FY24 and Q2 of FY24 respectively, is slated to slow down sequentially in the remaining two quarters of FY24,” said Sunil Kumar Sinha, Principal Economist, Ind-Ra.
The Reserve Bank of India (RBI) also expects a sequential slowdown in the GDP growth in the remaining two quarters and expects the overall FY24 GDP to come in at 7.0 per cent. The National Statistical Office is slated to release the first advance estimates for GDP for FY24 on Friday. The first advance estimates of GDP, obtained by extrapolation of data of the first seven-eight months of the ongoing financial year (FY24), are released early to help officers in the Ministry of Finance and other departments in framing the broad contours of Union Budget for the next financial year which is presented in Parliament on February 1.
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Ind-Ra expects the private final consumption expenditure (PFCE) to grow 5.2 per cent in FY24 (FY23: 7.5 per cent). The PFCE growth which increased to 6.0 per cent in Q1 of FY24, declined to 3.1 per cent in Q2 of FY24 (first half of FY24: 4.5 per cent).
However, PFCE growth in the second half of FY24 will benefit from the base effect (PFCE growth in H2 of FY23: 2.5 per cent). Therefore, Ind-Ra expects PFCE in 2HFY24 to grow 5.8 per cent.
It said wage growth is critical for consumption growth. Ind-Ra’s calculation shows that a 1 per cent increase in real wages could lead to a 1.12 per cent increase in the real PFCE and the multiplier effect of this could result in a 64 bps increase in the GDP growth. However, the data shows that the real wage growth of households belonging to the lower income bracket was marginally negative in Q2 of FY24, Ind-Ra said.
On the other hand, the real wage growth of households belonging to the upper income bracket grew 6.4 per cent in Q2 of FY24. As a result, the current consumption demand is skewed in favour of the goods and services consumed largely by the households belonging to the upper income bracket, it said.
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Ind-Ra said sustained real wage growth of the households belonging to lower income bracket is an imperative for a sustainable and broad-based recovery in consumption demand.