Q3 GDP data today: India's FY24 GDP pegged at 7.3%, H2FY24 growth to ease on lower capex, says NSE Report

India's GDP for the October–December quarter of fiscal 2023–24 (Q3FY24) is scheduled to be released today, February 29, amidst cautious Street estimates from analysts and brokerage firms that indicate a deceleration from the robust 7.6% growth recorded in the previous September quarter (Q2FY24).

In the current economic scenario, the Reserve Bank of India (RBI) has kept an actively disinflationary monetary policy stance aimed at supporting economic growth. The central bank's monetary policy committee (MPC) left the benchmark repo rate steady at 6.5% for the sixth straight meeting this month and decided to focus on the withdrawal of accommodation.

RBI Governor Shaktikanta Das has reiterated that the policy imperative at the current juncture is to remain focused on achieving the four per cent inflation target on a durable basis, keeping in mind the objective of growth. 

India FY24 GDP Growth estimates:

Meanwhile, leading investment banks and analytics agencies have released their respective forecasts for India's FY24 GDP growth. According to the first advance estimate released by Centre for Statistical Office (CSO), India’s real GDP growth for FY24 has been pegged at 7.3%—higher than market expectations and RBI’s estimate of seven per cent. 

Real GDP growth pegged at 7.3% for FY24: The gross fixed capital formation—proxy for investments in the economy, is expected to grow at a robust 10.3% which will drive the GDP growth in the current fiscal.

On the other hand, private consumption -constituting nearly 57 per cent of the real GDP, is expected to grow at a modest 4.4%, lower than 7.5% growth in the previous year, reflecting an uneven recovery and the impact of high inflation and El-Nino on rural demand.

The nominal GDP growth is estimated at 8.9%, lower than 10.5% assumed in the FY24 budget calculations. This was on account of deflation in wholesale prices for the most part of the current fiscal, pulling the deflator down to 1.6% for FY24.

Real GVA growth pegged at 6.9%: On the supply side, the real gross value added (GVA) growth is pegged at 6.9% in FY24, marginally lower than 7% in FY23, led by strong growth in industry and services, while agriculture is expected to feel the brunt of unfavourable climate conditions.

The impact of El-Nino, is evident in agricultural output that is expected to remain muted this year at 1.8 per cent year-on-year (YoY), down from four per cent growth in the previous year, according to January 2024' issue of NSE's ‘Market Pulse’ report.

Growth momentum to slow in H2FY24: The CSO’ FY24 estimate at 7.3% implies a moderation in growth at seven per cent in the second half of FY24 -- lower than 7.7% growth in H1FY24. That said, this is much higher than 6.25% estimated by the RBI in the December policy, said the NSE report.

The robust growth in investments at 11% in the second half is likely to be partly offset by subdued growth in government as well as private consumption. Concerns on growth looms largely through the consumption channel, emanating from tightened financial conditions and weakness in rural demand, according to NSE.

The International Monetary Fund (IMF) last month, upgraded India’s growth outlook on the back of better-than-expected resilience in its domestic demand. 

IMF now expects India’s GDP to grow by 6.7% in FY24, 40 basis points higher than its previous forecast of 6.3% given in the October 2023 update. One basis point is one-hundredth of a per cent.   

Q3FY24 GDP growth to ease below 7%: Street estimates

According to a recent research report by the State Bank of India (SBI), titled 'SBI Ecowrap', the Q3FY24 GDP growth is likely to be 6.8%, assuming there are no changes to the base figures. However, there is potential to reach seven per cent in case of any downward revisions in the GDP growth figures for the year-ago period (Q3FY23). 

These revisions in the previous year's data could positively impact the current year's growth figures. Factoring the slight decline in economic activity in Q3 FY24, it estimates GDP should grow in the range of 6.7-6.9% with a GVA growth of 6.6%, said SBI in its Ecowrap report.

Street estimates also suggest that a 0.2% contraction in the total spending of the central government and 25 state governments (all states except Arunachal Pradesh, Goa and Manipur) in Q3 FY2024 (+18.3% in Q2 FY2024) is expected to have dulled the GVA growth in the quarter.

Speaking on Q3 GDP growth estimates, Vaibhav Shah, Fund Manager, Torus ORO PMS said, ‘’Based on the recent high frequency indicators and corporate commentary during earning season, we expect that GDP for Q3 may show some signs of deceleration.''

‘’Even MPC in their last meet signaled some deceleration compared to Q2 GDP data. However, we are confident that the overall real growth of seven per cent will be achieved leading to India becoming one of the fastest growing economy in the world,'' added Shah.

In a recent interview with LiveMint, Aditi Nayar, Chief Economist, Head- Research & Outreach at leading credit rating agency ICRA said that India's GDP growth will moderate to six per cent in Q3FY24 dragged by lower output of kharif crops and a slowdown in the industrial sector. The economy will likely ease in Q4FY24 as well, according to the economist. 

Nayar added that the government capex is likely to remain tepid in the run-up to general elections in May 2024. ‘’We have projected the YoY growth of the GDP to ease to six per cent in Q3 FY2024 from 7.6% in Q2 FY2024. Further, the GVA growth is estimated to moderate to 6% in Q3 FY2024 from 7.4% in Q2 FY2024, driven by the industrial and agriculture sectors, amidst an improvement in services,'' Nayar told LiveMint.

Owing to the decline in output across all major kharif crops projected by the first advance estimates, ICRA projects agriculture, forestry, and fishing to dip to witness a sub-1% growth in Q3 FY2024.

Besides, the anticipated deterioration in the industrial sector growth in Q3 FY2024 is partly attributable to an adverse base effect and a deceleration in volume expansion, even as the continued deflation in commodity prices kept the profitability of some sectors favourable.