Risks to 6.5% growth forecast for FY24 now evenly balanced: CEA

Pointing to the continued momentum in high-frequency indicators, Chief Economic Adviser V Anantha Nageswaran on Wednesday upgraded his assessment of economic growth for FY24 to 6.5% with risks evenly balanced from a ‘high downside risk’ to the forecast in the Economic Survey.

Benefitting from the positive surprise for Q4, the FY23 GDP growth of 7.2% exceeded the advance estimate of 7% by a healthy margin, data released by the government on Wednesday showed.

“We don’t see the risks to 6.5% as weighted towards the lower side. So, if anything we are upgrading our assessment of the growth,” Nageswaran said.

“That there is as good a chance that this number (6.5%) may be exceeded as there is a chance that reality may undershoot this number.”

Nageswaran pointed to the momentum in the high-frequency indicators for his optimism for FY24. These include the momentum in the Purchasing Managers Indices (PMI), in credit growth and in private sector capital formation. The revenue collections of the government are also well poised to maintain its capital investment plans, he said.

PMI manufacturing, after remaining well in the expansionary zone throughout Q4 of FY23, registered a four-month high of 57.2 in April 2023. PMI-Services, after a robust performance in Q4 FY23, expanded at the fastest pace in 13 years in April 2023 to 62, on the back of strong demand, particularly in the finance and insurance sub-sector sectors. CPI inflation declined from a peak of 7.8% in April 2022 to an 18-month low of 4.7% in April 2023, driven by a reduction in food and core inflation.

Private Final Consumption Expenditure (PFCE) moderated, with its share in GDP declining from 61.6% in Q3 to 55% in Q4 of 2022-23 as the release of pent-up demand may be showing signs of some weakness, analysts said.

Nageswaran said there are signs of private final consumption expenditure turnaround with rural demand and urban consumption demand doing quite well.

“With the expected pick up already happening in the residential real estate construction and overall industrial activity, employment of labour, which have migrated to rural India will return to urban India and therefore income transfer to rural India should also happen,” the CEA said. “Therefore, we are confident that private final consumption expenditure growth will be respectable for 2023-24.”

The Reserve Bank of India has forecast the GDP growth to be 6.5% in FY24, while the International Monetary Fund has estimated it to be 5.9%. Rating agencies S&P and Fitch have estimated the GDP to grow at 6% in the current financial year.

Rating agency Icra chief economist Aditi Nayar said: “ICRA projects growth of real GDP in FY24 at 6%, with a downside risk of up to 50 bps in the event that an El Nino affects the monsoon rains.”

“At the same time, frontloaded capex by the government of India and the States and a rapid execution of infra projects could provide an upside to our GDP estimates for the fiscal. We foresee the nominal GDP growth at 10.0% for FY24,” Nayar said.

CareEdge chief economist Rajani Sinha has projected the GDP growth to moderate to 6.1% in FY24 due to a combination of factors including normalization of base, slowing domestic discretionary demand, subdued external demand and financial uncertainties.

“Rising rural wages, record foodgrains production (as per the 3rd AE) and expectation of lower food inflation bodes well for the rural demand outlook,” Sinha said, but added that the share of private consumption in GDP could witness a marginal fall.

“Investment demand is expected to remain robust, however, global growth slowdown and financial uncertainties could weigh on business optimism. The drag from net exports on overall GDP could be lower with an expected improvement in trade balance in FY24,” Sinha added.

Bank of Baroda chief economist Madan Sabnavis said a higher growth number than expected at 7.2% in FY23 will put pressure on growth performance in FY24 which he has projected at 6-6.5%. “The phenomenon of pent-up demand will not be strong and private sector investment has to pick up this year,” Sabnavis said.