India’s GDP growth is estimated to rise to a four-quarter high of 7.7% in April-June

Strong government capital spending and strong domestic demand are expected to have fueled growth in the first quarter of 2023-24, with a favorable base effect also playing a role.

India’s economy probably grew at the fastest pace in four quarters between April and June, with economists expecting GDP to have grown 7.7 percent on-year, according to a Moneycontrol survey. According to the same survey, economists forecast GDP growth to fall to a three-year low of 6.2 percent for the 2023-24 period as a whole.

The Ministry of Statistics will publish the GDP data from April to June at 5:30 p.m. on August 31.

India’s GDP grew 6.1 percent in the January-March period and 13.1 percent in April-June 2022. In 2022-23, the economy had expanded 7.2 percent.

“We expect estimated GDP growth of 7.8 percent (with upside risks of more than 8 percent) versus 6.1 percent in January-March, driven by strong domestic demand, coupled with momentum from the government capital spending, which are likely to be key drivers of growth even as net growth in exports is expected to be a drag,” said Kanika Pasricha, an economist at Standard Chartered Bank.

Following the announcement of a record capex target of Rs 10 lakh crore by 2023-24, the Center started the year in earnest, with its April-June investments coming in at Rs 2.78 lakh crore, a whopping 59 per cent. more than in the same quarter. last year.

Sector expectations

To be sure, the base effect is still favourable. However, economists see demand as strong, particularly for services. According to ratings agency ICRA, the services sector’s gross value added (GVA) likely rose 9.7 percent in April-June, well above the 6.9 percent growth recorded in January-March.

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“In April-June, 11 of the 14 high-frequency indicators of the services sector registered year-on-year growth, with an expansion rate ranging between 0.3 percent (telephone subscribers) and 18.6 percent (passengers of national airlines).

ICRA’s estimate, along with Sunidhi Securities’, for April-June GDP growth is the highest at 8.5 percent. The lowest estimate is 6.7 percent for Société Générale.

While growth in the service sector is projected to be close to double digits, the manufacturing sector is expected to have grown at a more sedate pace of between 5 and 8 percent. However, this would still represent a considerable improvement given that the average growth posted by the manufacturing sector over the past six quarters has been a whopping 1.2 percent.

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In January-March, manufacturing GVA growth was 4.5 percent. This number is expected to rise in April-June on the back of lower global commodity prices and improved volumes and margins.

The other big engine of the Indian economy, the agriculture sector, is expected to remain resilient, posting GVA growth of 4-4.5 percent, up from 5.5 percent in January-March, the highest in three years.

Policy impact

At 7.7 percent, economists’ expectation for the April-June GDP growth figure is 30 basis points lower than the Reserve Bank of India’s (RBI) forecast of 8 percent. Similarly, the consensus for the growth figure for the full year is also 30 basis points below the government and RBI projection of 6.5 percent.

Economists expect growth to slow more than the authorities due to the impact of tighter monetary conditions and weakening export performance. But with GDP data likely to show strong domestic demand, the RBI’s Monetary Policy Committee (MPC) may continue to keep the repo rate unchanged at 6.5 percent for several more months.

“We continue to believe the window for rate cuts is closed for now, with the RBI likely to remain on hold for the remainder of the fiscal year, in our view, with only a strong growth shock likely to prompt it to act.” Barclays economists noted.

Beyond April-June, the Indian central bank forecasts GDP growth to slow sharply to 6.5 percent in July-September, 6 percent in October-December and 5.7 percent in January-March. 2024, as the favorable base effect continues to fade.