All eyes now on 7.6% growth for the year

India’s economy may expand 7.6% in FY24 amid strong investment growth in plant and machinery, robust manufacturing growth and a slight improvement in trade, despite consumption and government spending growing slower than previously estimated, the second advance estimate released by the statistics ministry showed.

In January, the ministry had made a forecast of 7.3% growth in the fiscal. Gross fixed capital formation or investments in fixed assets is projected to grow at 10.2% in the current financial year, nearly at the level projected in the January estimate. However, both household spending and government expenditure adjusted for inflation are expected to grow only at 3% in the current fiscal, although in January, the former was projected to grow at 4.4% and the latter at 4%.

A key highlight of the second advance estimate is a decline in imports in rupee terms and a slight improvement in exports this year, from the level projected in January, which is helping to reduce the shock on account of negative net exports. Exports are expected to grow at 1.5% in rupee terms this fiscal from the year-ago period, while imports are expected to grow at 10.9% annually, the second advance estimate showed. In January, the forecast was of a 1.39% export growth and a 13.1% import growth.

Strong growth in mining, manufacturing, construction and services sector are contributing the overall economic growth in the current year. Manufacturing output is projected to grow at a robust 8.5% this fiscal, although it comes on a low base, with FY23 manufacturing output projected to have contracted by over 2%, as per the first revised estimates for that year released on Thursday. Farm output is expected to grow only at 0.7% this fiscal on account of erratic monsoons, sharply lower than the 1.8% growth projected in January. However, agriculture production in the last fiscal has been revised to 4.7% on Thursday, up from 4% reported provisionally earlier.

Separately, data released by the commerce ministry showed that the output of eight core infrastructure sectors expanded by 3.6% in January, the slowest monthly pace in 15 months. Six of the eight core industries reported a rise in production. Output in refinery products and fertilizers contracted.

Coal supported the core industries’ output with a double-digit increase in production, while crude oil production expanded during the month after contracting in December.

The 7.6% economic growth estimated for the current fiscal comes on top of a slight downward revision in the growth rate for FY23 to 7% in the first revised estimates for that year, down from the 7.2% previously projected in the provisional estimates. The statistics ministry also reported an 8.4% GDP growth in the December quarter of this fiscal, against a 4.3% growth in the same period a year ago.

Experts highlighted the gap between 6.5% growth in gross value addition (GVA) and the 8.4% GDP growth in the third quarter as a result of a surge in the growth of net indirect taxes to a six-quarter high of 32% in the quarter, which they said may not be sustainable. India Ratings and Research said in an analysis that the 8.4% December quarter growth comes in the context of a downward revision of the growth in the previous comparable period to 4.3% from 4.5%.

Chief economic advisor V. Anantha Nageswaran said that after the festival season, there may be a slight lull in spending, but if one looks at the overall third quarter spending, some sectors of the consumption space are doing still quite well. For example, domestic passenger traffic.

“As a share of GDP, when other sectors begin to thrive, there is a better balancing of economic growth. It is not possible to expect that all sectors will be firing on all cylinders in which case the economy must be overheating. It is good to see that different sectors of the economy come into their own at different points in time. The big picture is that post-covid recovery is running at 7% or more for the three years including this year and is likely to continue next year.”

Given that private consumption and government consumption growth are somewhat weak, growth in India is being driven almost entirely by domestic growth. There also, mostly, it is government and public sector investment growth, explained EY chief policy advisor D.K. Srivastava. “Domestic growth has to be strong enough to overcome the impact of the negative contribution of net exports,” said Srivastava. If private investment and India’s net exports improve, that could add some more momentum to the growth, he added.

The latest forecast comes after the Reserve Bank of India (RBI) revised its growth forecast to 7% for the current fiscal year, from an earlier estimate of 6.5%, on the back of robust growth in the first two quarters of the ongoing fiscal.

Nominal GDP is expected to grow at 9.1% in the current fiscal, slower than the 10.5% growth rate projected in the FY25 budget presented on 1 February. The statistics ministry also revised the June and September quarter GDP growth rate to 8.2% and 8.1%, from the previous estimates of 7.8% and 7.6% respectively.