Amid the slowing global growth, geopolitical risks and volatile financial conditions, India’s year-on-year (YoY) growth of the gross domestic product (GDP) is projected to moderate sequentially to 7.0 per cent in Q2FY2024.
In India, domestic economic activity is being supported by robust agricultural performance, sustained buoyancy in services, double-digit credit growth and healthier corporate and bank balance sheets.
The State Bank of India (SBI) in a report stated, “The quarterly GDP growth for the Q2FY24 should be at 6.9-7.1 per cent, though there could be still a forecasting bias. The mean growth rate thus comes at around 7 per cent for Q2FY24.”
This will firmly push up the FY24 growth rate over the Reserve Bank of India (RBI) projections at 6.5 per cent. Interestingly, the rating agency Icra also projected the growth to moderate to 7.0 per cent in Q2FY2024 from 7.8 per cent in Q1FY2024.
Icra added that the gross value added (GVA) growth is estimated to ease to 6.8 per cent in Q2FY2024 from 7.8 per cent in Q1 FY2024, driven by the services sector (to +8.2 per cent from +10.3 per cent) and agriculture (to +1.0 per cent from +3.5 per cent), amidst an improvement in the industry (to +6.6 per cent from +5.5 per cent).
Aditi Nayar, Chief Economist, Head-Research and Outreach, Icra said, “A normalising base and an erratic monsoon are expected to result in a sequential moderation in the GDP growth to 7.0 per cent in Q2 FY2024 from 7.8 per cent in Q1 FY2024. Regardless, we anticipate that the GDP expansion in this quarter will exceed the Monetary Policy Committee’s (MPC’s) October 2023 projection of 6.5 per cent.”
Looking ahead, uneven rainfall, narrowing differentials with year-ago commodity prices, the possible slowdown in momentum of government capex amid general elections, weak external demand and the cumulative impact of monetary tightening are likely to translate into lower GDP growth in H2 FY2024, she said.
“As a result, we maintain our FY2024 GDP growth estimate at 6.0 per cent, lower than the MPC’s projection of 6.5 per cent for the fiscal,” added Nayar.
However, concerns about global growth remain intact. With a palpable slowdown of major economies globally, export competitiveness seems to have hit a temporary roadblock. But, the growing commitment of global behemoths to incrementally source components and parts, apart from local manufacturing commitments aimed at exports, augurs well for the sector in times ahead, the SBI report stated.
Against this backdrop, a deficit of net exports of goods and services increased to USD 21 billion in Q1FY24 owing to a higher goods trade deficit and a lower net surplus in services.
In nominal terms, the weighted contribution of net exports in nominal GDP was positive at 1.3 per cent in Q1FY24 and the goods trade deficit increased to USD 60 billion, while the services trade surplus improved to USD 40 billion, leading to a net exports deficit of goods and services at USD 20 billion.
In YoY terms, this is 55 per cent higher than net exports in Q2 FY23 (deficit of USD 44 billion). “Accordingly, the net exports contribution to nominal GDP is likely to come positive and increase in Q2 FY24 compared to Q1 FY24, possibly around 2 per cent,” the report mentioned.
