Icra Ratings, in its recent report, anticipates a notable surge in India’s economic growth, projecting an acceleration to 8.5 per cent during the April-June period of the current fiscal year. This marks a significant rise from the preceding January-March quarter’s growth rate of 6.1 per cent. The driving factors behind this swift growth, as identified by the rating agency, encompass a supportive business environment and a revival in the services sector.
Contrary to the Reserve Bank of India’s (RBI) forecast of 8.1 per cent, Icra’s chief economist, Aditi Nayar, highlights the potential challenges that the latter half of the fiscal year might bring, which could serve as dampeners to the growth trajectory. Nayar points to factors such as irregular rainfall patterns, converging discrepancies with commodity prices compared to the previous year, and a plausible deceleration in the momentum of government capital expenditure, especially as the Parliamentary elections approach. Her forecast maintains a more conservative stance, projecting a 6 percent real GDP growth estimate for FY24, a figure below RBI’s projection of 6.5 per cent.
The initial quarter of the fiscal year experienced a series of setbacks for GDP growth, including unexpected heavy rainfall, lagged effects of monetary tightening, and subdued external demand. Despite these challenges, the June quarter witnessed a growth surge, attributed to factors like rising services demand, enhanced investment activity, a commendable front-loading in government capital expenditure, and significantly reduced prices of various commodities that bolstered sectoral margins.
Icra’s analysis further encompasses the prediction of robust expansion in the Gross Fixed Capital Formation (GFCF) during the first quarter of FY24. This forecast is founded on the robust year-on-year growth performance demonstrated by a majority of investment-related indicators.
The agency also highlights the substantial growth in aggregate capital outlay and net lending for state governments and the government of India. The capital expenditure of 23 state governments, along with the central government, surged by impressive percentages in Q1 FY24. Additionally, external commercial borrowings aimed at capital expenditures, including modernization and new projects, surpassed the full-year FY23 levels.
The services sector displayed a remarkable performance, with an estimated growth in Gross Value Added (GVA) reaching 9.7 percent in Q1 FY24, up from 6.9 per cent in Q4 FY23. This growth was evidenced by the positive performance of 11 out of 14 high-frequency indicators related to the services sector.
On the flip side, the growth in electricity generation took a downturn, reaching a low of 1.3 percent in Q1 FY24. This was attributed to unfavourable factors affecting the sector, along with excessive rainfall experienced during the first half of the quarter.
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