India Q1 GDP Preview: Economists Peg Growth At 7.8% Amid Resilience
India's economy remained on track in Q1, supported by resilient domestic demand and a services-led recovery.
India's economy remained resilient in the first quarter of FY24 as domestic demand, government capex and a services led recovery shielded the nation from tighter monetary and weak global conditions.
The gross domestic product is estimated to grow 7.8% in April- June 2024, a step up from 6.1% in the previous quarter, according to 13 economists polled by Bloomberg. Gross value added is expected to rise 7.7%, compared to 6.5% in Q4. GDP data for Q1FY24 will be released on Aug. 31.
Headline growth is expected to accelerate in Q1, rising to a four-quarter high and completing the recovery in high-contact services, said Rahul Bajoria, chief economist at Barclays. Domestic demand remains the key economic driver of activity, while external demand is faltering, he said.
Economic activity in Q1 FY24 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure. Moreover, sharply lower prices of various commodities on a YoY basis supported margins in some sectors.Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA
However, unseasonal heavy rains, the lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth, Nayar said, forecasting GDP to grow 8.5% in Q1.
Key Components Of GDP
While agriculture production is expected to stay relatively resilient, mining-sector GDP is likely to show flattish growth around 4.5%, effectively offsetting lower volume growth with higher profitability, according to Bajoria's forecasts.
Teresa John, lead economist at Nirmal Bang Institutional Equities, forecasts agriculture & allied sector growth to come in at 3.6% year-on-year and mining to expand 6.5%.
Growth in Q1 is likely to be led by a sharp upswing in manufacturing sector growth, aided by strong corporate profitability amid declining wholesale inflation, said John, who forecasts manufacturing sector growth at 15%.
Industry ex-construction is likely to grow 12.7% year-on-year in Q1, according to John's forecasts.
The clear standout in Q1 data is likely to be the construction sector, which is on track to post its second straight double-digit growth print amid front-loaded capital expenditure by both central and state governments, and a pick-up in non-financial corporate investments, said Bajoria.
Services are expected to continue to be the largest contributor to growth, driven by robust activity levels in the financial services, trade, hotels and transport sectors, said Bajoria. High-frequency indicators for air and rail travel continued to show steady demand in the transport sector, although capacity constraints, along with a catch-up to pre-Covid levels of activity, mean some moderation in momentum compared to the previous quarter, he said.
The financial services segment is being bolstered by double-digit credit growth, with deposit growth also rising in the quarter, aided by the return of Rs 2,000 banknotes to the system.
John expects services including construction to grow 7.7% year-on-year, with construction growth pegged at 15%.
Weaker But Resilient Growth Ahead
Erratic rainfall, narrowing differentials with year-ago commodity prices and possible slowdown in momentum of government capex ahead of parliamentary elections could dampen growth in the second half of the fiscal year, said Nayar. "Overall, we maintain our FY24 GDP growth estimate at 6%, lower than the RBI's projection of 6.5% for the fiscal."
