India is expected to grow at 5.9 per cent on a year-on-year basis in FY24, India Ratings and Research’s (Ind-Ra’s) FY24 Economic Outlook said. This compares to the 6.4 per cent real GDP growth projected by the Reserve Bank of India (RBI) in its February Monetary Policy Committee meeting.
For FY23, National Statistical Organisation’s (NSO’s) first advanced estimate had pegged GDP growth at 7 per cent, but according to Ind-Ra, the growth momentum of the first half of FY23 is not expected to sustain in the second half of the year.
“Although there are a few positives for India such as sustained government capex, deleveraged corporates, low NPA (non-performing assets) in the banking sector, production-linked incentive scheme and likelihood of global commodity prices remaining subdued, Ind-Ra believes they are still not sufficient to take the FY24 GDP growth beyond 6 per cent”, Sunil Kumar Sinha, principal economist Ind-Ra, said.
According to NSO’s GDP projections, growth is expected to drop to 4.5 per cent in the second half of the ongoing financial from 9.7 per cent in the first half. The pent-up demand that gave a push to the growth is now normalising, exports are facing headwinds due to global growth slowdown, and credit growth is facing tighter financial conditions.
As per Ind-Ra’s projections, private final consumption expenditure (PFCE) is expected to grow 6.7 per cent in FY24 from 7.7 per cent in FY23. However, that might not be sufficient to generate a broad-based consumption demand recovery. “Current consumption demand is highly skewed in favour of the goods and services consumed largely by the households belonging to the upper income bracket. The goods and services of mass consumption have not yet shown a sustained pick-up. This, to some extent, is reflected in the way the recovery in consumer durables and non-durables in terms of Index of Industrial Production has so far panned out in FY23. While consumer durables grew 3.4 per cent y-o-y during 9MFY23 (first nine months of FY23), non-durables contracted 1.2 per cent y-o-y.”
Government final consumption expenditure (GFCE) is expected to grow to grow 9.6 per cent in FY24 compared to 11.5 per cent in FY23, due to the sustained government capex, according to Ind-Ra. GFCE has been providing the much-needed cushion for economic recovery, clocking an average growth of 7.9 per cent during FY16-FY20. “However, due to the government’s focus shifting towards capex, the size of the revenue expenditure in the union budget FY24 has been kept at Rs 35.02 lakh crore, only Rs 0.43 lakh crore higher than the FY23RE of Rs 34.59 lakh crore. Ind-Ra therefore expects GFCE to grow at 2.5 per cent y-o-y in FY24 (FY23: 3.1 per cent),” the rating agency said.
Net exports (exports minus imports) remained negative over the years, thereby not impacting aggregate demand in a positive way. A fall in negative net exports is expected to be positive for aggregate demand. “However, with merchandise exports losing steam due to the global growth slowdown and merchandise imports not moderating proportionately, Ind-Ra expects the share of net exports to GDP to increase to negative 9.2 per cent in FY24 from negative 7.1 per cent in FY23.”
Average retail and wholesale inflation in FY24 is expected to remain at 5.4 per cent and 1.1 per cent, respectively. As per Ind-Ra’s projections, the RBI is expected to put a long pause on the repo rate front to monitor the core inflation closely. Agriculture has been performing well and Ind-Ra projects that the sector would grow 3.1 per cent in FY24 compared to 3.5 per cent in FY23 on the assumption of a normal monsoon in 2023.
However, Ind-Ra expects industrial growth to remain tepid due to the ‘K-shaped’ recovery that is preventing consumption demand to become broad based as well as adversely impacting wage growth, especially of those belonging to the lower half of the income pyramid. “Ind-Ra therefore expects the industrial sector to grow 3.9 per cent y-o-y in FY24 (FY23: 4.1 per cent). Services, the largest component of GVA, is estimated to grow 7.3 per cent y-o-y in FY24 (FY23: 9.1 per cent). Services sector may face some headwinds from the tightening financial conditions, but some upside may come from the roll-out of 5G which is expected to increase the reach of online commerce, education and telemedicine to remote regions, and create new-age business and associated employment,” it said.
