Economists Predict Indian Economy to Surpass RBI Projections, Anticipate Growth of 8.3-8.5% in Q1 FY24

23 Aug, 2023

Economists Predict Indian Economy to Surpass RBI Projections, Anticipate Growth of 8.3-8.5% in Q1 FY24

The Indian economy is anticipated to expand by a range of 8.3% to 8.5% during the first quarter of FY2022-23, fueled by heightened demand for services and increased investment activity. This growth projection surpasses the 8% forecast put forth by the Reserve Bank's Monetary Policy Committee (MPC) for the same quarter. Experts in the field of economics have revealed this optimistic outlook.

SBI Research's Artificial Neural Network (ANN) model, which incorporates 30 high-frequency indicators, forecasts GDP growth of 8.3% for the Q1 of FY24. Moreover, the growth for the entire FY24 is expected to outperform the RBI's annual estimate of 6.5%.

A notable surge in capital expenditure has been observed during Q1, with the Central government utilizing 27.8% of its budget, while various states have spent 12.7% of their budget allocations. States like Andhra Pradesh, Telangana, and Madhya Pradesh, where elections are impending, have experienced capital expenditure growth reaching up to 41%. This information has been shared in the latest Ecowrap report by the Group Chief Economic Adviser of the Economic Research Department at SBI.

Through careful analysis of corporate results, SBI Research has fortified confidence in its growth projections. In the first quarter of FY24, Indian corporations demonstrated top-line growth of approximately 3%. Notably, EBITDA and PAT witnessed remarkable growth, exceeding 30% in comparison to Q1 of FY23. These gains were primarily driven by sectors such as banking, automotive, information technology, pharmaceuticals, fast-moving consumer goods, and refineries.

Despite a nearly unaltered top-line for corporate results in Q1FY24 (excluding the banking, financial services, and insurance sector), both EBITDA and PAT showed growth rates of 23% and 33% respectively when compared to Q1FY23. SBI Research noted that corporate margins, which had been under pressure in previous quarters, displayed signs of improvement since Q4 FY23. Furthermore, credit growth persisted in double digits, spreading across a wide spectrum of sectors. Within the period up to 28 July 2023, ASCB's Deposits expanded by 12.9%, while credit escalated by 19.7%.

On a different note, ratings agency ICRA has projected a year-on-year GDP growth improvement to 8.5% in Q1 FY24 from 6.1% in Q4 FY23. This growth is attributed to the supportive foundation established in Q1 FY2023 when the Indian economy began its recovery from the impacts of the Covid-19 pandemic. In Q1 FY2024, Gross Value Added (GVA) growth is predicted to rise to 8.1% from 6.5% in Q4 FY2023, with the services sector leading the recovery.

Aditi Nayar, the Chief Economist responsible for research and outreach at ICRA, emphasized the contribution of sustained growth in service demand and heightened investment activity to the Q1 FY2024 economic activity. She particularly highlighted a positive front-loading in government capital expenditure. She also acknowledged that lower commodity prices on a year-on-year basis supported profit margins in various sectors. However, she cautioned that unforeseen heavy rains, delayed impacts of monetary tightening, and weak external demand could negatively influence GDP growth. Despite this, ICRA maintained its FY2024 GDP growth projection at 6.0%, lower than the MPC’s estimation of 6.5%.

Moving to Q4 FY24, India experienced an acceleration in economic growth, reaching 6.1% compared to the 4.4% growth recorded in the preceding December quarter.

It's noteworthy that the Reserve Bank of India, in its latest monetary policy announcement, retained its real GDP projection at 6.50% for FY24. This is broken down as follows: 8.0% for Q1, 6.5% for Q2, 6.0% for Q3, and 5.7% for Q4. Conversely, the International Monetary Fund (IMF) projected a growth rate of 6.1% for India in 2023, marking a 0.2 percentage point upward revision from its April projection. This revision is attributed to the stronger-than-expected growth observed in the fourth quarter of 2022.