India GDP Preview: Economists Expect Economy To Grow 7% In Q4, 7.9% In FY24
For the full year, GDP is expected to grow 7.9%, compared to 7% in FY23.
Indian economic growth is expected to remain on track in the fourth quarter of the year ended March, despite rising at a slower pace.
The gross domestic product is estimated to grow by 7% in the January–March period, according to economists polled by Bloomberg. That's lower than 8.4% in the previous quarter. Gross value added is forecasted to increase by 6.3%.
For the full year, GDP is expected to grow 7.9%, compared to 7% in FY23. It is also higher than 7.6% as per the government's second advance estimates.
"The Indian economy has exhibited remarkable resilience despite higher-rates-for-longer, Russia-Ukraine war and Covid (pandemic) prior to that, though a strong pickup in real GDP growth during FY24 can be also attributed materially to a very low GDP deflator," Kaushik Das, chief economist at Deutsche Bank, said.
"Nominal GDP growth is likely to slow down to 9.5% year-on-year in FY24, from 14.5% in FY23," he said. "But in real terms, GDP growth is likely to have accelerated to 8% year-on-year in FY24, from 7% in FY23, thanks to a collapse in GDP deflator to 1.5% in FY24 compared to 7.9% in FY23."
Key Sectors (In Q4 FY24)
Growth in GVA is estimated to ease to 5.7% in Q4 FY24 from 6.5% in the previous quarter, driven by the industrial sector that is estimated to grow by 7.9% from 10.4%, and services, estimated to grow by 6.2% from 7%, according to estimates by Aditi Nayar, chief economist at ICRA.
"The agricultural GVA is expected to contract for the second straight quarter in Q4 to 0.5%, amid weak trends in the rabi output (barring wheat) and concerns related to yields," she added.
"On the expenditure side, rural consumption has likely improved in Q4 FY24, after remaining subdued for majority of FY24," said Gaura Sengupta, chief economist at IDFC First Bank.
"FMCG sales growth (volume) showed an improvement in rural areas in Q4FY24," she said. "Demand for employment under NREGA declined in Q4FY24, reflecting improvement in labour market conditions. Meanwhile urban demand indicators remain mixed with slowdown in FMCG sales growth and pick-up in passenger vehicle sales," Sengupta said.
The capex cycle remains supported by central government and state government expenditure, Sengupta said, adding that the drag from net imports is expected to be lower in Q4FY24, with a reduction in trade deficit and rise in services surplus.
The wedge between GDP and GVA is likely to persist in Q4 but lesser than the gap seen in Q3FY24, she said. The centre’s net indirect tax revenue less subsidy expenditure growth has moderated in Q4 compared to jump in Q3, with lesser decline in subsidies, she explained.
The Deflator Effect?
For the full year, an appreciably lower GDP deflator has artificially pushed up the real GDP growth outturn for FY24, Das said. "If real GDP was calculated giving a higher weight to CPI inflation, as it should, the real GDP outturn would have been significantly lower."
GDP deflator is calculated incorporating both WPI and CPI inflation, with the former being accorded a higher weight of 65-70%.
Ideally, WPI inflation shouldn't be given such a high weight, given that services sector contribute the maximum to GDP (64-65%) at this juncture, while manufacturing sector's contribution to GDP is much smaller, Das explained. But, due to legacy issues, the same method is continuing to calculate the GDP deflator, she said.
