India’s GDP grew at a faster-than-expected 7.6 percent in the second quarter of 2023-24.
India’s second-quarter GDP data, released on November 30, left one and all awestruck with a 7.6 percent growth rate, well above the consensus forecast of 6.8 percent and down slightly from 7.8 percent recorded in the April-June period. While most economists promptly began raising their forecasts, their revised estimates come nowhere near what a lone dove predicts.
According to Prasenjit Basu of ICICI Securities, India’s GDP will grow by a stunning 7.9 percent this year, with the July-September print prompting a 30-basis-point hike in his already out-of-consensus forecast of 7.6 percent.
Also read: July-September GDP growth at 7.6%, sharply above forecasts
Basu had predicted a GDP growth rate of 7.5 percent for the second quarter. To be sure, ICICI Securities’ forecast is a significant outlier, with State Bank of India being among the next highest at 7 percent for 2023-24.
But it doesn’t end there.
“With a renewed reformist zeal after the elections (especially the likely notification of the new labour laws that will be transformative of medium-term employment and productivity prospects), a monetary easing cycle from the start of the year, and goods exports rebounding from a year of sluggishness, we expect real GDP to accelerate to 8.4 percent growth in 2024-25,” Basu and analyst Laavanya Sisaudia said in a note on December 1.
Also read: Economists hike FY24 growth forecast close to 7%, RBI may follow suit next week
To put their numbers into perspective, the broad market consensus is that the GDP growth this year may be close to 7 percent, with the government and the Reserve Bank of India (RBI) expected to raise their forecast of 6.5 percent this month. In fact, the central bank sees growth at 6.5 percent next year, while most non-government economists see it somewhat down. Nomura, for instance, sees growth slowing down to 5.6 percent in 2024-25.
While almost all economists see economic growth declining in the second half of 2023-24 from 7.7 percent it clocked in April-September 2023, Basu sees it rising to 8 percent, aided by 8 percent growth in services, 9 percent growth in manufacturing, agriculture growth recovering to 3 percent, and the construction sector continuing to boom.
In the first half of 2023-24, the the farm sector growth reached 2.4 percent, while manufacturing and construction expanded by 9.3 percent and 10.5 percent.
According to the RBI’s latest forecast, GDP growth is seen at 6.0 percent in October-December 2023 and 5.7 percent in January-March 2024.
“Helped by a low base, strengthening momentum in investment spending and an improvement in private consumption, manufacturing should sustain 9 percent growth in H2FY24. With agriculture likely growing 3 percent, and the construction boom persisting, we expect real GDP to accelerate to 8 percent growth in H2FY24, taking 2023-24 real GDP growth to 7.9 percent,” Basu and Sisaudia wrote.
As a result of the higher growth, they also see the Centre’s fiscal deficit dropping to 5.5 percent of the GDP this year, well below the target of 5.9 percent.
“Normally, fiscal deficit exceeds the full-year target in the first 6-8 months of the fiscal year, as tax revenue is strongest in the final quarter, but in the last two years, the deficit has been less subject to seasonality,” they noted.
As per data released on November 30, the central government’s fiscal deficit in April-October amounted to just 45 percent of the full-year target.
“To smoothen out the impact of seasonality, we look at the 12-month moving average of the fiscal deficit, which moderated to 5.8 percent of GDP in October 2023, marginally lower than the 2023-24 target of 5.9 percent. We expect the full-year deficit to moderate to 5.5 percent of the GDP, as tax revenue strengthens in the final five months of 2023-24,” they added.