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India's economy in April to June likely grew at the fastest pace in a year, bolstered by central and state governments opening up their wallets for capex, stronger consumption demand and higher activities in the services sector, according to some economists
A median forecast of an ET poll of 20 economists pegged the growth rate at 7.8 per cent for the first quarter of this financial year that started Apr. 1. The estimated range in the poll was 7.5-8.5 per cent. The Reserve Bank of India has forecast a growth rate of 8 per cent
GDP estimates by economists.
While India’s GDP grew 6.1 per cent in the March quarter of FY23, it had grown at 7.2 per cent in FY23 as a whole.
Continued improvement in services demand and investment activity, and lower commodity prices spurred growth while unseasonal heavy rains, a lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth in Q1FY24.
GDP trends so far
Barclays has estimated Q1 GDP growth at 7.8 per cent, while SBI Research and ICRA have pegged Q1 growth at 8.3 per cent and 8.5 per cent, respectively.
ICRA said economic activity in Q1 FY2024 was boosted by a “continued catch-up in services demand and improved investment activity”, particularly front-loading of the government capital expenditure. “We peg GDP growth in Q1 FY2024 at 8.5%, exceeding the Monetary Policy Committee’s (MPC’s) forecast of 8.0%,” Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said.
“As many as 11 of the 14 high-frequency indicators pertaining to the services sector recorded a YoY growth in Q1 FY2024, with the pace of expansion ranging from 0.3% (telephone subscribers) to 18.6% (domestic airlines passenger traffic). In contrast, indicators such as CV sales (-3.3%) and air cargo traffic (-0.4%) saw a mild YoY contraction in Q1 FY2024,” she said.
State Bank of India Research in its Ecowrap report said that economic activity remained resilient mainly driven by the services sector. “More importantly, there has been a surge in capital expenditure in Q1, with the Central government spending 27.8% of budgeted, while states at 12.7% of budgeted. States like Andhra Pradesh, Telangana, Madhya Pradesh where elections are due have registered capital expenditure growth up to 41%,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI said in the report.
The growth in incremental deposits growth has almost doubled at Rs 11.3 lakh crore, compared to Rs 5.0 lakh crore last year (Rs 2.73 lakh crore received through Rs 2000 banknotes and Rs 1.5 lakh crore from HDFC merger), the report said. “Despite rising interest rates, the overall economic growth led to higher credit demand leading to banks reporting a robust rise in advances. Both the PSBs and private sector banks logged an equal pace of loan growth during Q1FY24. All the major financial parameters viz., credit deployment, profitability, asset quality, capital adequacy etc. indicate that the performance of PSBs has significantly improved,” it said.
The construction sector is expected to stand out in April-June GDP data, as it is likely to post its second straight double-digit growth print amid front-loaded capital expenditure by both central and state governments, and a pickup in non-financial corporate investments.
“Some drag to growth is expected from weaker momentum in mining, and exports, the latter given external headwinds and ebbing reopening demand. We think robust domestic demand is anchoring economic growth, with strong momentum in areas such as construction, underpinned by government capex … this should ensure that growth remains anchored close to trend levels, giving enough room for RBI to be on a long pause. We continue to believe that the window for rate cuts is closed for now, and the RBI is likely to be on hold for the rest of the fiscal year, in our view, with only a strong growth shock likely to stir it into action,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said.
Capex thrust
The Narendra Modi-led government has continued its focus on capital expenditure in recent months. Capital expenditure increased to around Rs 2,78,500 crore during April–June 2023 from the Rs 1,75,000 crore spent during the same period last fiscal year.
The central government likely spent 27.8 per cent of the budgeted amount in Q1, while state governments’ spend was 12.7 per cent. Further, capex spending by the Centre and 23 states (excluding Arunachal Pradesh, Assam, Goa, Manipur and Meghalaya) was up 59.1 per cent and 76 per cent on an annual basis.
States such as Andhra Pradesh, Telangana, and Madhya Pradesh where elections are due saw capital expenditure growth of up to 41 per cent, an SBI Research report showed.
However, economists expect heavy rains to have played a spoilsport by causing production disruptions. "Unseasonal heavy rains, the lagged effect of the monetary tightening, and weak external demand exerted downward pressure on GDP growth," ICRA’s Nayar said.
Despite disruptions, corporate results in the first quarter of FY24 displayed signs of resilience with EBITDA and PAT growing over 30 per cent on an annual basis and revenues growing around 3 per cent. Yet, results for India Inc. ex BFSI, show an almost flat topline, as per a study by SBI Research. The growth wasn’t broad-based either.
"Corporate performance in the (April-June) quarter pointed to a sharp pick up in profits, though not broad-based. This reflected a cooling-off in input costs, whilst sales growth eased," said Radhika Rao, senior economist, DBS group.
Corporate margins, under pressure for the last few quarters due to higher input prices, have started showing improvement since Q4FY23, the study showed.
FY24, the road ahead
The RBI expects India to grow at 6.5 per cent in FY24. Twenty two economists in the ET poll estimated a median growth of 6.2% for the full year.
"We expect GDP growth to moderate to 6.5% in FY24 from 7.2% in FY23 due to base normalisation, moderation in urban demand, uneven recovery in rural demand and weak external demand," said Rajani Sinha, chief economist, CareEdge.
Uneven monsoon, peppered with El Nino worries is likely to affect India’s consumption revival, in a scenario where global growth rates are slowing.
"While domestic consumption and investment demand are expected to continue driving growth, global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by government and the RBI," the finance ministry said in its monthly economic report for July.
The RBI hiked benchmark lending rates by 250 bps since last May before taking a breather for two meetings. While the RBI, and Finance Ministry have dubbed the recent vegetable price spike a seasonal aberration, they have called for more vigilance to keep the price rise in check.
Economists do not expect GDP data, due to be released on August 31, to alter RBI's outlook for policy rates.
m.economictimes.com
India's economy in April to June likely grew at the fastest pace in a year, bolstered by central and state governments opening up their wallets for capex, stronger consumption demand and higher activities in the services sector, according to some economists
A median forecast of an ET poll of 20 economists pegged the growth rate at 7.8 per cent for the first quarter of this financial year that started Apr. 1. The estimated range in the poll was 7.5-8.5 per cent. The Reserve Bank of India has forecast a growth rate of 8 per cent
GDP estimates by economists.
While India’s GDP grew 6.1 per cent in the March quarter of FY23, it had grown at 7.2 per cent in FY23 as a whole.
Continued improvement in services demand and investment activity, and lower commodity prices spurred growth while unseasonal heavy rains, a lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth in Q1FY24.
GDP trends so far
Barclays has estimated Q1 GDP growth at 7.8 per cent, while SBI Research and ICRA have pegged Q1 growth at 8.3 per cent and 8.5 per cent, respectively.
ICRA said economic activity in Q1 FY2024 was boosted by a “continued catch-up in services demand and improved investment activity”, particularly front-loading of the government capital expenditure. “We peg GDP growth in Q1 FY2024 at 8.5%, exceeding the Monetary Policy Committee’s (MPC’s) forecast of 8.0%,” Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said.
“As many as 11 of the 14 high-frequency indicators pertaining to the services sector recorded a YoY growth in Q1 FY2024, with the pace of expansion ranging from 0.3% (telephone subscribers) to 18.6% (domestic airlines passenger traffic). In contrast, indicators such as CV sales (-3.3%) and air cargo traffic (-0.4%) saw a mild YoY contraction in Q1 FY2024,” she said.
State Bank of India Research in its Ecowrap report said that economic activity remained resilient mainly driven by the services sector. “More importantly, there has been a surge in capital expenditure in Q1, with the Central government spending 27.8% of budgeted, while states at 12.7% of budgeted. States like Andhra Pradesh, Telangana, Madhya Pradesh where elections are due have registered capital expenditure growth up to 41%,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI said in the report.
The growth in incremental deposits growth has almost doubled at Rs 11.3 lakh crore, compared to Rs 5.0 lakh crore last year (Rs 2.73 lakh crore received through Rs 2000 banknotes and Rs 1.5 lakh crore from HDFC merger), the report said. “Despite rising interest rates, the overall economic growth led to higher credit demand leading to banks reporting a robust rise in advances. Both the PSBs and private sector banks logged an equal pace of loan growth during Q1FY24. All the major financial parameters viz., credit deployment, profitability, asset quality, capital adequacy etc. indicate that the performance of PSBs has significantly improved,” it said.
The construction sector is expected to stand out in April-June GDP data, as it is likely to post its second straight double-digit growth print amid front-loaded capital expenditure by both central and state governments, and a pickup in non-financial corporate investments.
“Some drag to growth is expected from weaker momentum in mining, and exports, the latter given external headwinds and ebbing reopening demand. We think robust domestic demand is anchoring economic growth, with strong momentum in areas such as construction, underpinned by government capex … this should ensure that growth remains anchored close to trend levels, giving enough room for RBI to be on a long pause. We continue to believe that the window for rate cuts is closed for now, and the RBI is likely to be on hold for the rest of the fiscal year, in our view, with only a strong growth shock likely to stir it into action,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said.
Capex thrust
The Narendra Modi-led government has continued its focus on capital expenditure in recent months. Capital expenditure increased to around Rs 2,78,500 crore during April–June 2023 from the Rs 1,75,000 crore spent during the same period last fiscal year.
The central government likely spent 27.8 per cent of the budgeted amount in Q1, while state governments’ spend was 12.7 per cent. Further, capex spending by the Centre and 23 states (excluding Arunachal Pradesh, Assam, Goa, Manipur and Meghalaya) was up 59.1 per cent and 76 per cent on an annual basis.
States such as Andhra Pradesh, Telangana, and Madhya Pradesh where elections are due saw capital expenditure growth of up to 41 per cent, an SBI Research report showed.
However, economists expect heavy rains to have played a spoilsport by causing production disruptions. "Unseasonal heavy rains, the lagged effect of the monetary tightening, and weak external demand exerted downward pressure on GDP growth," ICRA’s Nayar said.
Despite disruptions, corporate results in the first quarter of FY24 displayed signs of resilience with EBITDA and PAT growing over 30 per cent on an annual basis and revenues growing around 3 per cent. Yet, results for India Inc. ex BFSI, show an almost flat topline, as per a study by SBI Research. The growth wasn’t broad-based either.
"Corporate performance in the (April-June) quarter pointed to a sharp pick up in profits, though not broad-based. This reflected a cooling-off in input costs, whilst sales growth eased," said Radhika Rao, senior economist, DBS group.
Corporate margins, under pressure for the last few quarters due to higher input prices, have started showing improvement since Q4FY23, the study showed.
FY24, the road ahead
The RBI expects India to grow at 6.5 per cent in FY24. Twenty two economists in the ET poll estimated a median growth of 6.2% for the full year.
"We expect GDP growth to moderate to 6.5% in FY24 from 7.2% in FY23 due to base normalisation, moderation in urban demand, uneven recovery in rural demand and weak external demand," said Rajani Sinha, chief economist, CareEdge.
Uneven monsoon, peppered with El Nino worries is likely to affect India’s consumption revival, in a scenario where global growth rates are slowing.
"While domestic consumption and investment demand are expected to continue driving growth, global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by government and the RBI," the finance ministry said in its monthly economic report for July.
The RBI hiked benchmark lending rates by 250 bps since last May before taking a breather for two meetings. While the RBI, and Finance Ministry have dubbed the recent vegetable price spike a seasonal aberration, they have called for more vigilance to keep the price rise in check.
Economists do not expect GDP data, due to be released on August 31, to alter RBI's outlook for policy rates.
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indianexpress.com
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