As per First Advance Estimates (FAE) of National Income released by National Statistical Organization (NSO), India’s real GDP and GVA growth for FY24 are projected at 7.3% and 6.9% respectively. The projected GDP growth stands higher than most estimates, with RBI’s projection pegged at 7.0% and consensus estimate pegged at 6.7%.

Key takeaways 

• FY24 GDP first advance estimates comes in better than FY23 growth of 7.2%, defying the notion of an expected slowdown in growth in the ongoing fiscal year. However, there is a likelihood of a downward revision in the second advance estimates and the provisional estimates due in end Feb-24 and end-May-24 respectively. 
• Nominal GDP, which becomes a critical input for Budget arithmetic, is projected at Rs 296.6 Lakh Cr – translating into annualized growth of 8.9% compared to 16.1% in FY23. Against the implied budgeted growth of 10.8%, this gives Government’s fiscal deficit target of 5.9% a statistical upside of 10 bps ‘ceteris paribas’. 
• With H1 FY24 GDP growth estimated at 7.7%YoY, the FAE implies a growth of 7.0% in H2 FY24. The moderation is sharper on GVA front, from 7.6% in H1 to 6.2% in H2 FY24 – owing to headwinds from slower global growth on domestic exports, lackadaisical performance of kharif output and anticipated downside to rabi output, along with moderation in urban consumption of both goods and services. 

Granular highlights

• On the sectoral side, there is considerable drag seen in sectors of Agriculture (1.8% vs. 4.0% in FY23) and Trade, Hotels, Transport & services (6.3% vs. 14.0% in FY23). While the former depicts the downside to Kharif produce amidst uneven Southwest monsoon and possibly the impact of El Nino on upcoming Rabi output, Services too continue to see a fast normalization with petering out of vengeance (pent-up) demand completely in FY24.
• Offsetting this was the pickup in growth of Manufacturing, Mining & Quarrying, and Financial & Real Estate Services; the former aided by the disinflation in input costs seen in FY24. 
• On the demand side, Government consumption and investment have lent robust and strong support to FY24 GDP growth; with moderation in imports coming as a relief. 
• In contrast, exports as well as domestic private consumption demand are both on a lower turf, reflecting the slowing global demand as well as potential headwinds to urban demand from higher interest rates and regulated uncollateralized lending. 

Inferences and Outlook

The stronger than anticipated growth in FY24 has been an outcome of varied themes: 

• One, the support from Government spending has been higher than anticipated. Capex has continued to grow in double-digits for the third consecutive fiscal year, up ~31%YoY on Apr-Nov FYTD24 basis. In addition, revenue expenditure too is estimated to offer incremental support as seen in growth in Government consumption. This could perhaps retain the traction ahead of General elections in early FY25. 
• Two, deflation in WPI, averaging at -1.3%YoY over Apr-Nov FY24, has provided a statistical boost to growth of Manufacturing, Mining & quarrying, and Construction sectors
• Third, although the slowdown in global demand is seen to be weighing upon exports, the drag on GDP from net exports is seen to be reducing on account of the faster deceleration in imports. The Net Exports/GDP ratio is estimated at -2.0% in FY24 vs. -3.7% in FY23. 

On the other hand, growth in private consumption at 4.4% in FY24, marks its slowest pace in the last two decades (excluding the Covid year of FY21). While contact-intensive services are facing normalization at a fast pace, demand for goods may face headwinds from monetary tightening as well as RBI regulations on unsecured lending. 

Further, one must bear in mind, that NSO’s FAE are projections based on 6-8 months of actual data. The anticipated slowdown in H2 FY24 vs. H1 FY24 is expected to playout more strongly in Q4, with congregation of global slowdown, downside to Rabi output, rationalization of government spending as well as impact of domestic monetary tightening playing out. 

Keeping all these factors in mind, alongside the strength in high frequency indicators up to the month of Nov-23, we revise our FY24 GDP growth forecast to 6.8% with a minor upside bias. 

Says Suman Chowdhury, Chief Economist and Head- Research “NSO’s robust first advanced estimates of GDP for FY24 indicates that the pace of moderation in the growth of the Indian economy may be slower than most economists expected. However, these estimates may not have factored in the expected moderation in economic activity particularly in the last 3-4 months of the fiscal as reflected in the high frequency indicators like the latest PMI data. While we have revised upwards our GDP forecasts for FY24 to 6.8% based on the economic momentum that we have seen so far, we need to track the growth trajectory closely over the next few quarters particularly post the elections. The sustainability of a high level of GDP growth over the medium term will hinge critically on an improvement in private consumption demand which has seen a material moderation to 4.4% in FY24 FAE.” 

Table 1: India’s GVA and GDP: Sectoral break-up