Indian economy to grow at 6.5% real GDP for FY24: Finance Ministry

The Union Ministry of Finance on 22 September released the Monthly Economic Review for August 2023, stating to remain comfortable with a 6.5 percent real GDP growth estimate for FY24 with symmetric risks.

The report mentioned the estimates of national income released by the National Statistical Office (NSO) show real GDP growing at 7.8 percent in Q1 of FY24.

Citing strong domestic demand for consumption and investment, the ministry said these led to the growth in Q1 of FY24. The government also said that improved corporate profitability, private capital formation, and bank credit growth led to the desired results.

The 7.8 percent growth recorded in the first quarter (April-June) was witnessed in various high-frequency indicators.

The review, while flagging certain risks like steadily climbing crude oil prices in the global market and, the impact of the monsoon deficit in August on Kharif and Rabi crops, said, "That needs to be assessed." Though the ministry noted the rains in September have erased a portion of the rainfall deficit at the end of August.

"In sum, we remain comfortable with our 6.5 percent real GDP growth estimate for FY24 with symmetric risks," it said.

ALSO READ: Economic outlook bright but high oil prices a concern: FinMin

The report said that as strengthening consumption led to a rise in demand for goods and services, both the manufacturing and the services sectors saw their output and value-added grow robustly in Q1 of FY24. It added that the strength of domestic investment is the result of the government’s continued emphasis on capital expenditure and the measures implemented by the Union government have also incentivised States to increase their capex spending. 

As services exports have performed well, the contribution of net exports to GDP growth has increased in Q1 of FY24, said the report, adding, "HFIs for July/August 2023 reflects the sustenance of growth momentum in Q2 of FY24."

Banking sector:

In the banking sector, the report said that a variety of indicators suggest increasing resilience of the sector through declining Non-Performing Assets (NPA), improving Capital Risk-weighted Asset Ratio (CRAR), rising Return on Assets (RoA), and Return on Equity (RoE) as of March 2023.

While data for Non-Banking Finance Companies (NBFCs) indicated improvements in their profitability and risk-taking behavior. It cited the RBI estimates of July 2023 where consistent and broad-based growth in the non-food bank credit of Scheduled Commercial Banks (SCBs) since April 2022 was shown.

“Robust health of the banking system can be attributed to the deleveraging process undertaken by the corporate sector over the previous decade,” the report said, adding that the growth momentum for the private non-financial companies continued from the last quarter of FY23 into the first quarter of FY24.

The Ministry report even said that the restructuring of the balance sheet has placed the companies in a sound position to expand their investment and become more resilient to economic shocks. It added that the healthy performance of the corporate sector has vindicated and strengthened investors’ confidence in the Indian growth story.

Inflation:

Stating that the calibrated measures taken by the government helped to reduce core inflation to a 40-month low level, the report said retail inflation decreased in August, with both core inflation and food inflation easing from the July figure. The consumer food price inflation eased to 9.9 percent in August.

Risks Remain:

Despite showing confidence in attaining a 6.5 percent real GDP growth estimate for FY24, the report cited risks including climbing crude oil prices, monsoon deficit in August, and stock market correction. “Offsetting these risks are the bright spots of corporate profitability, private sector capital formation, bank credit growth, and activity in the construction sector,” said the report.