India Ratings ups FY24 growth estimate to 6.2%

India Ratings and Research on Wednesday upwardly revised its FY24 real GDP growth estimate to 6.2 per cent from the 5.9 per cent expected earlier. The domestic ratings agency attributed its revision to a variety of factors, including the government's capital expenditure, deleveraged balance sheets of India Inc and banks, subdued global commodity prices and the prospect of private capital expenditure picking up. India Ratings, however, also flagged some constraints on Gross Domestic Product (GDP) growth in the current fiscal year before the general elections, including a slip in global growth, which has hit Indian exports, tighter financial conditions upping cost of capital domestically, a deficit monsoon, and tepid manufacturing growth.

"All these risks will continue to weigh and restrict India's GDP growth to 6.2 per cent in FY24, and the quarterly GDP growth, which came in at 7.8 per cent in the June quarter, is slated to slow down sequentially in the remaining three quarters of FY24," its principal economist Sunil Kumar Sinha said. It can be noted that in FY23, the economy had grown at 7.2 per cent. The RBI expects the real GDP growth to come at 6.5 per cent for FY24.

The agency said the consumption demand is not broad based, and estimated the Private Final Consumption Expenditure (PFCE) to grow 6.9 per cent in FY24 as against 7.5 per cent in FY23. The real wage growth of households belonging to the lower income bracket has been negative since the fourth quarter of FY21 and became marginally positive only the December quarter of FY23, it said, adding that the same for households belonging to the upper income bracket rose in the range of 9.5 per cent to 12.7 per cent during the same period.

The agency explained that 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 0.64 per cent increase in the GDP growth. There are some green shoots visible on the private capital expenditure front, the agency noted, citing a recent Reserve Bank of India paper.
The agency said while exports are facing headwinds, the services sector recovery is on track.

It, however, called out monsoon rainfall and industrial growth as "areas of concern". Retail inflation will soften, and the headline CPI will come at 5.5 per cent in FY24, the agency said, adding that financial conditions will remain tight. The agency said meeting the 5.9 per cent fiscal deficit target will be a challenge for the government, pointing at the gross tax collection growth at just 2.8 per cent in the first four months of the fiscal year as against a 10.4 per cent estimated in the Budget.

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