New Delhi (Agency): ICRA Ratings, an Indian rating agency, has released a report forecasting that India’s economic growth will jump to 8.5% for the April-June period of the current fiscal year. This represents an acceleration from the 6.1% growth rate observed in the January-March quarter of the same year.
The optimistic forecast is attributed to a supportive base and a robust recovery in the services sector. This estimate by ICRA is higher than the Reserve Bank of India’s (RBI) prediction of 8.1% for the same period.
However, Aditi Nayar, ICRA’s chief economist, cautioned that the economy is likely to face headwinds in the second half of the fiscal year, which could dampen growth. Nayar pointed to erratic rainfall, narrowing differentials with commodity prices from the previous year, and a possible slowdown in the momentum of government capital expenditure (capex) as the Parliamentary elections approach as factors that may limit growth. She maintained her estimate of 6% real GDP growth for FY24, lower than the RBI’s forecast of 6.5%.
Several factors contributed to the growth projection, such as unseasonal heavy rains, the lagged effect of monetary tightening, and weak external demand exerting downward pressure on GDP growth. Meanwhile, factors like continued catch-up in services demand, improved investment activity, front-loading in government capex, and lower prices for various commodities, which expanded margins in some sectors, boosted growth in the June quarter.
ICRA also projected that the gross fixed capital formation (GFCF) expansion in Q1 FY24 would be in double digits. The robust year-on-year growth performance of most investment-related indicators supported this projection. The agency highlighted that the aggregate capital outlay and net lending of 23 state governments (excluding five states) and the Indian government’s gross capital expenditure expanded sharply by 76% and 59.1% to Rs 1.2 lakh crore and Rs 2.8 lakh crore, respectively, in Q1 FY24.
Additionally, capex-related external commercial borrowings for modernization, new projects, and capital goods procurement jumped to USD 13.0 billion in Q1, exceeding the full-year FY23 levels of USD 9.6 billion.
ICRA estimated the services’ gross value-added growth to have risen to 9.7% in Q1 FY24 from 6.9% in Q4 FY23, with 11 of the 14 high-frequency indicators related to the services sector recording growth during the quarter.
The only dip observed was in electricity generation, which fell to an 11-quarter low of 1.3% in Q1 FY24, due to an unfavorable base and excess rainfall in the first half of the quarter.
The latest report from ICRA is indicative of a strong recovery trend in the Indian economy, driven by the services sector and government capex. However, potential challenges in the second half of the fiscal year underline the importance of continued monitoring and strategic planning to sustain growth.