Indian economy estimated to grow at 7.3% in FY24

On the back of high public spending and much-improved manufacturing performance, the government pegged economic growth at 7.3 per cent for Fiscal Year 2023–24 on Friday5 Jan. At this rate, India remains the fastest-growing economy in the world.

The economy grew by 7.2 per cent in Fiscal Year 2022–23.

“These are early projections for 2023–24. Improved data coverage, actual tax collections, expenditures incurred on subsidies, data revisions made by source agencies, etc. would have a bearing on subsequent revisions of these estimates,” the National Statistical Office (NSO) said while releasing the First Advance Estimate (FAE), which will be revised five times in the next two years.

Manufacturing, which accounts for about 17 per cent of the GDP, is estimated to expand 6.5 per cent y-o-y in 2023/24, compared with 1.3 per cent a year ago, while construction output was seen growing by 10.7 per cent, up from 10 per cent in the previous year, data showed. However, growth in farm output, contributing about 15 per cent to GDP, was seen slowing down to 1.8 per cent in the current fiscal year from 4 per cent in the previous year.

Commenting on the number, Aditi Nayar, Chief Economist with ICRA, said that implicitly, the NSO expects GDP growth to moderate to 7.0 per cent in H2 FY24 from 7.7 per cent in H1 FY2024. “Surprisingly, the estimated GVA growth of 6.9 per cent for FY24 implies that growth in this metric has been assumed at 6.2 per cent in H2, significantly lower than the imputed GDP number for this period,” she said. She termed the second half number as quite high, given the tepid outlook for agriculture amidst the weak kharif output and ongoing lag in rabisowing, as well as the feared temporary slowdown in capex ahead of the general elections.

In a note, Sunil Kumar Sinha (Principal Economist) and Paras Jasrai (Senior Analyst) of India Ratings & Research said that despite global headwinds, the growth momentum witnessed in FY24 is indicative of the Indian economy’s resilience. However, the road ahead is not going to be easy so long as private final consumption expenditure does not fully recover and becomes broad-based. Here, the key would be to watch the wage growth, especially of households belonging to the lower income bracket, because that is what is critical for broadening the consumption demand.

“The data shows that the real wage growth of households belonging to the lower income bracket was marginally negative in 2QFY24. Ind-Ra’s calculation shows that a 1 per cent increase in real wages could lead to a 1.12 per cent increase in the real PFCE, and the multiplier effect of this could result in a 64-bp increase in GDP growth,” the note said.