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India’s GDP growth is off to a solid start in FY24 as the country witnessed its highest growth rate in the last one year in the first quarter that ended June 2023. This robust economic growth has been propelled by a thriving service sector, strong consumer demand, and strategic government expenditure.
India’s fiscal year begins on April 1 and ends on March 31. During the first quarter, the country’s GDP grew at a rate of 7.8% year-on-year, in line with the Reserve Bank of India’s projection and exceeding expert predictions of 7.7%. It also surpassed the growth rate of 6.1% of the last quarter (Q4 FY23).
At the same time, this is the highest reported figure since the first quarter of FY23, when the growth rate stood at 13.1%.
”On the supply side, the services sector (esp BFSI & Real Estate) continues to be the dominant factor driving growth with a 10.3% year-on-year increase. On the demand side…private consumption improved significantly supporting high-frequency data on auto sales, air traffic, fuel consumption etc….,” said Abhishek Bisen, Head of Fixed Income at Kotak Mahindra Asset Management Company.
He further added that fixed investment growth was relatively steady, supported by capital expenditure from the state and the central government of the country. However, net exports harmed India’s GDP growth during this period, said ING.
“…though this has not shown up in terms of a large inventory build, which often happens, so that doesn’t necessarily imply any ominous unwinding of stock build-ups in the coming quarters,” the financial services company added.
Growth in key infrastructure sectors adds to India’s GDP optimism
Robust growth in India’s GDP extended to the performance of the country’s eight core infrastructure sectors in July 2023. They recorded an 8% increase, an improvement compared to the 4.8% growth observed in the same month the previous year, as per official data. This growth surge was driven by heightened production levels in coal, crude oil, and natural gas.
Among the rest of the eight key sectors, the production of steel, cement, and electricity maintained a steady upward trajectory during the same period. Nevertheless, the growth rate of these sectors in July was slightly lower than the preceding month when it had reached 8.3%.
Meanwhile, India’s fiscal deficit reached 33.9% of the full-year target, amounting to Rs 6.06 lakh crore ($73.26 bn) in the first four months of FY24. In comparison, during the corresponding period of FY23, the deficit stood at 20.5% of the budget estimates.
And it’s not just the fiscal deficit that is a cause for concern. Oxford Economics suggests a few reasons as to why India’s GDP will slow down in the rest of 2023 and 2024.
“…low monsoon rains hampered crops in August and there is a risk of further rainfall deficiencies…later this year. Higher inflation caused by weak harvests will weigh on consumer sentiment and real household incomes…Moreover, past monetary policy tightening is still feeding through to private investment activity while external demand for goods and services is set to remain subdued,” said the global economic researcher.
Looking forward, the South Asian nation’s GDP is expected to be 6.1% in 2023 and 6.3% in 2024, as per IMF, nevertheless making it one of the fastest-growing emerging market economies in the world.
