Mon. Mar 4th, 2024


RBI raises FY24 GDP growth to 7% after surprise upside in Q2

The Reserve Bank has raised its forecast of India’s gross domestic product to 7 per cent from the earlier 6.5 per cent after strong growth surprised in the second quarter.

“The real GDP growth for 2023-24 is projected at 7.0 per cent with Q3 at 6.5 per cent; and Q4 at 6.0 per cent. Real GDP growth for Q1:2024-25 is projected at 6.7 per cent; Q2 at 6.5 per cent; and Q3 at 6.4 per cent (Chart 1). The risks are evenly balanced,” RBI governor Shaktikanta Das said in the Monetary Policy Statement.

The triggers

It said real gross domestic product (GDP) grew year-on-year (y-o-y) by 7.6 per cent in Q2:2023-24, underpinned by robust investment and government consumption, which cushioned the drag from net external demand.

On the supply side, gross value added (GVA) rose by 7.4 per cent in Q2, driven by buoyant manufacturing and construction activities. Continued strengthening of manufacturing activity, buoyancy in construction, and gradual recovery in the rural sector are expected to brighten the prospects of household consumption. Healthy balance sheets of banks and corporates, supply chain normalisation, improving business optimism, and rise in public and private capex should bolster investment going forward. With improvement in exports, the drag from external demand is expected to moderate, it said.

On the demand side, households’ consumption is supported by durable urban demand11 and gradual turnaround in rural demand as reflected in sales of fast moving consumer goods (FMCG) and other indicators. Festival related demand is also spurring households’ discretionary consumption in Q3. Investment activity continues

to be aided by buoyancy in public sector capex, the governor said. This is also reflected in the strong growth in steel consumption, cement production and imports of capital goods.15

Capacity utilisation (CU) in the manufacturing sector continues to remain above the long period average. Investments in fixed assets by listed private manufacturing companies also registered healthy growth in H1:2023-24, primarily driven by key industries such as petroleum, steel, chemicals and cement. The total flow of resources to the commercial sector from banks and other sources at Rs 17.6 lakh crore during the current financial year so far is significantly higher than that of last year (Rs 14.5 lakh crore). Despite weakness in external demand, both goods and services exports returned to positive territory in October.

“Looking ahead, private consumption should gain support from gradual improvement in rural demand, strengthening of manufacturing activity and continued buoyancy in services. The healthy twin balance sheets of banks and corporates, high capacity utilisation, continuing business optimism and government’s thrust on infrastructure spending should propel private sector capex. The drag from external demand is also expected to moderate with a turnaround in merchandise and services exports,” Das said.

The headwinds

Headwinds from the geopolitical turmoil, volatility in international financial markets and geoeconomic fragmentation pose risks to the outlook.

“Global growth is slowing at a divergent pace across economies. Inflation continues to ebb though it remains above target with underlying inflationary pressures staying relatively stubborn. Market sentiments have improved since the last MPC meeting – sovereign bond yields have declined, the US dollar has depreciated, and global equity markets have strengthened. Emerging market economies (EMEs) continue to face volatile capital flows,” the governor said.

  • Published On Dec 8, 2023 at 12:12 PM IST

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