India’s gross domestic product (GDP) may expand by nearly 7% in the second quarter of FY24 on sound economic fundamentals, exceeding the Reserve Bank of India’s (RBI) October 6 estimate of 6.5%, but in line with governor Shaktikanta Das’s prediction on Tuesday, at least four experts said.
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Speaking at the Business Standard BFSI Insight Summit on Tuesday, Das said India’s economic growth number in the second quarter (Q2) is likely to surprise “on the upside”. His observation was based on trends such as momentum of economic activities and some early indicators. The following day, Goods and Services Tax (GST) collections in October surged to ₹1.72 lakh crore, the second highest monthly collection since the new indirect tax regime started in July 2017.
The official GDP number for Q2 (July-September 2023) is expected to be released on November 30.
“The reasons for the current optimism regarding India’s growth prospect for 2QFY24 lie in the buoyant high frequency indicators for recent months,” said EY chief policy advisor DK Srivastava. The core Index of Industrial Production (IIP) growth averaged 9.7% in the second quarter (2Q) of FY24, gross GST collections averaged ₹1.62 lakh crore, and PMI manufacturing and services also showed high levels at an average of 57.9 and 61.1 respectively.
“Power consumption, automobile sales, and credit growth also provide strongly positive signals. It would not, therefore, be a surprise if the 2QFY24 growth exceeds RBI’s earlier expectation of 6.5%,” he said. For the year as a whole, there is a strong likelihood that GDP growth may turn out to be about 6.5%, marginally higher than the International Monetary Fund (IMF) and the World Bank’s projection of 6.3%, he added. RBI’s Monetary Policy Committee (MPC) in its meeting on October 4-6 this year meeting projected real GDP growth for 2023-24 at 6.5% with Q2 at 6.5%; Q3 at 6%; and Q4 at 5.7%.
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Srivastava, however, cautioned about the risks.
“Some of the risk factors that India may still need to take into account include deficiency and uneven spread of the southwest monsoon, volatile global crude prices, and some supply side disruptions due to the ongoing geopolitical conflicts,” he said. “It is however definite that India will outperform its large peer economies by a tangible margin,” he added.
Nilaya Varma, co-founder and CEO of consultancy firm Primus Partners, said: “Strong GDP growth for the quarter will not be a surprise. Most high frequency indicators are in the green- IIP is up 8-12%, PMI is around 58 indicating strong expansion, SBI banking is showing 19% yoy growth, automobile sales are at their historic high.” Higher infrastructure spend should be able to sustain this growth, he added.
Global agencies also saw Indian economy growing faster than previously estimated this year. The International Monetary Fund (IMF) in its World Economic Outlook last month said, It projected India’s 2023-24 GDP growth to be 6.3%, a 20-basis point up from the July numbers. One basis point is one-hundredth of a percentage point.
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Last month, World Bank also retained India’s economic growth forecast for 2023-24 at 6.3% in its biannual review despite challenging external conditions. “IMF, in its October 2023 issue of the World Economic Outlook, has highlighted India’s position as the global growth leader among major economies with a medium-term growth prospect of 6.3% in each year from 2023 (FY24) to 2028 (FY29),” Srivastava said in the latest edition of EY Economic Watch.
