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Business News/ Economy / SBI Research raises India's FY24 GDP forecast to 7% from 6.7%
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SBI Research raises India's FY24 GDP forecast to 7% from 6.7%

India saw a substantial economic upturn in Q2FY24, with a GDP expansion of 7.6 percent. This was primarily propelled by robust expansion in manufacturing, marking a 13.9 percent increase, and a 13.3 percent jump in the construction sector.

India saw a substantial economic upturn in Q2FY24, with a GDP expansion of 7.6 percent. Premium
India saw a substantial economic upturn in Q2FY24, with a GDP expansion of 7.6 percent.

The State Bank of India (SBI)'s Research 'Ecowrap' has raised India's FY24 gross domestic product (GDP) forecast to 7 percent from 6.7 percent earlier. This comes amid higher-than-expected Q2 GDP numbers.

"The strong growth numbers for Q2 released today are a harbinger of interesting times ahead and can reinvigorate the interests of global corporations, policymakers, investment gurus, and fund managers across jurisdictions afresh along themes like investments, infrastructure, consumption, and markets by going Overweight," the research said.

Also Read: Indian markets now valued more than India GDP for FY24

"Our optimism has been more than vindicated as we have been penciling growth during the current FY sailing above Reserve Bank of India's (RBI) projection at 6.5 percent for quite some time, despite the vagaries of climate and rain-induced asymmetry seeping in of late. This also makes a case for revisiting the forecasted numbers, First by Mint Street coming at 6.8 percent (6.5 percent earlier) and applying the same logic our numbers inch towards 7 percent now (6.7 percent earlier)," it added.

Manufacturing, construction drive Q2 FY24 GDP by 7.6%

India saw a substantial economic upturn in Q2FY24, with a GDP expansion of 7.6 percent. This was primarily propelled by robust expansion in manufacturing, marking a 13.9 percent increase, and a 13.3 percent jump in the construction sector. The Gross Value Added (GVA) witnessed a parallel growth of 7.4 percent. During the preceding quarter, the nominal GDP surged by 9.1 percent.

Sector-wise, agriculture, a consistent performer since the COVID-19 pandemic, saw a modest growth of 1.2 percent in Q2, marking an 18-quarter low. While the industry sector rose to 13.2 percent from 5.5 percent in Q1, marking a 9-quarters high.

Also Read | India remains the fastest-growing major economy, Q2 GDP growth beats RBI estimates: 5 key takeaways

However, the services sector lagged, registering a 5.8 percent growth due to a 10-quarters low growth of 4.3 percent in specific segments such as trade, hotels, transport, communication, and related services.

Projected Fiscal Growth

With a 7.7 percent real GDP growth in the first half of FY24, it is anticipated that the overall growth for the fiscal year would hover around 7 percent, assuming a 6.0-6.2 percent growth in the second half, the Ecowrap report said. There are optimistic indications that this growth could surpass the 7 percent mark for FY24.

Core GVA saw a sequential deceleration, registering an 8.4 percent year-on-year (YoY) growth in Q2FY24 compared to 8.7 percent in Q1FY24. However, this growth remains notably higher than the 5.9 percent YoY growth recorded in Q2FY23.

Also Read | Q2 GDP: Brokerages and experts say growth to exceed 7 percent

The nominal GDP growth in Q2FY24 stood at 9.1 percent YoY, from the 8 percent growth in Q1. The growth in the GDP deflator surged to 1.4 percent in Q2FY24 from a low of 0.2 percent in Q1FY24, albeit remaining considerably lower than the FY23 figures.

These Q2 numbers are consistent with deflation in the Wholesale Price Index (WPI) and the easing of Consumer Price Index (CPI) inflation.

GDP deflator for agriculture and services notably increased to 5.9 percent and 2.3 percent YoY, respectively, compared to 0.8 percent in Q1FY24. Conversely, within the industry sector, all subsectors, except mining and quarrying, exhibited negative growth, resulting in an industry deflator registering negative growth of -1.4 percent in Q2.

Manufacturing Sector’s Remarkable Rebound

The manufacturing sector witnessed a 13.9 percent surge in Q2FY24, leaping from 4.7 percent in Q1FY24 and an improvement from -3.8 percent in Q2FY23. The sector’s contribution reached a 9-quarter high of 2.5 percent in Q4, contrasting sharply with -0.7 percent and -0.2 percent in Q2 and Q3 FY23, respectively.

Government initiatives, particularly the Production-Linked Incentive (PLI) schemes targeting 14 sectors, have significantly contributed to this uptick, as per the report. These schemes have reshaped India’s export profile, shifting focus from traditional commodities to high-value products like electronics, telecommunication goods, and processed food items.

Also Read: India Q2 GDP data highlights

While China remains a manufacturing powerhouse globally, challenges like tariff conflicts, fluctuating economic conditions, and escalating labour costs have slightly eroded its dominant market position, it added. India has seen improvements in industrial productivity, owing to automation and enhanced worker training, thereby reducing manufacturing costs, especially for labour-intensive consumer goods, it noted.

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Published: 01 Dec 2023, 09:15 AM IST
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