Official statistics issued on Friday indicated that investments, driven by government spending, are set to surge by double digits, causing India's economy to expand at a faster rate than any major global countries. The predicted growth rate for FY24 is 7.3%.
Prior to the 7.2% growth in FY23, the first advance estimate of GDP was higher than the Reserve Bank of India's 7% forecast for the year.
According to a note published by Sunil Kumar Sinha and Paras Jasrai of India Ratings, "the growth momentum witnessed in FY24 is indicative of the Indian economy's resilience," despite global headwinds. Compared to the government's budgeted 10.5% growth, the actual predicted increase in GDP is far lower at 8.9%. The economy's growth pace shows no signs of slowing down in the first advance projections of FY24. The finance ministry announced on social media platform X that the economy is resilient and strong, thanks to changes implemented over the past nine years. This will allow the economy to maintain a high growth rate in the years to come.
The National Statistical Office (NSO) released a statement stating, "These are early projections for 2023-24." It went on to say that future revisions will be affected by factors such as greater data coverage, actual tax receipts, and spending on state subsidies.
According to some experts, in order to keep the momentum going, consumption needs to increase.
"Consumption is 300 bps below GDP growth and investment is 300 bps above GDP growth," remarks Pronab Sen, India's former top statistician. It's not sustainable to have such a big gap for so long. A growth rate of investments of 200 basis points and a growth rate of consumption of somewhat less than GDP are required. Right there is where it's at.
Sen said that it is concerning because agriculture is projected to experience slower growth in the second half.
In the first half of the year, the Indian economy expanded by 7.7 percent, which was higher than expected and caused economists to raise their growth prediction. The government predicts that increased investment and manufacturing will drive 6.9% economic growth in the second half of the year.
Economists have pointed out that the government's continued emphasis on capital expenditures (capex) is reflected in the 10.3% growth observed in gross fixed capital formation (GFCF), an investment proxy.
"This is more heartening because it has come on the high base of FY23, whereby GFCF had grown 11.4% YoY," according to the Ind-Ra economists.
Compared to the previous year, the investment rate, or GFCF as a proportion of nominal GDP, is projected to reach a nine-year high of 29.8% in FY24.
"While private corporate capex is showing signs of improvement, the government capex is really pulling its weight and providing much-needed support to the ongoing recovery," Ind-Ra stated.
The majority of the surge, according to experts, is likely to originate from industries other than agriculture when it comes to output. "Although growth in agriculture slowed significantly to 1.8% from 4% last fiscal, the momentum in non-agriculture more than made up for it," stated DK Joshi, chief economist at Crisil. "In this regard, the construction industry in particular has grown in prominence, whereas the service sector has experienced some degree of moderation."
The 7.3% prediction has some analysts doubting it in light of the deteriorating capital expenditure and agricultural outlook. "The growth assumed for H2FY24 is quite high, given the tepid outlook for agriculture amidst the weak kharif output and ongoing lag in rabi sowing, as well as the feared temporary slowdown in capex ahead of the general elections," said Aditi Nayar, chief economist, Icra.
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