ICRA forecasts India’s GDP growth to moderate to 6.7% in Q4 FY2024

Domestic rating agency ICRA projected India’s GDP growth for the March quarter of FY24 to moderate to a four-quarter low of 6.7%. For the full fiscal year, ICRA estimates GDP growth at 7.8%.

GDP growth

The Indian economy demonstrated robust growth in the earlier quarters of FY2024, with GDP expanding by 8.2% in the June quarter, 8.1% in the September quarter, and 8.4% in the December quarter. However, ICRA’s Chief Economist, Aditi Nayar, attributes the expected slowdown in the March quarter to lower volume growth and reduced profitability in certain industrial sectors due to diminishing gains from commodity prices.

India’s GDP grew by 6.1% in the March quarter of the 2022-23 fiscal, with full-year growth for 2022-23 at 7%. The GDP figures for Q4 FY2024 and provisional estimates for the entire fiscal year are scheduled for release on May 31.

ICRA anticipates the gap between GDP and gross value added (GVA) growth to narrow to 100 basis points (bps) in Q4 FY2024, down from 185 bps in the previous quarter. This reduction is expected due to a slower expansion in net indirect taxes, influenced by a smaller decline in subsidy outgo.

For the full-year FY2024, ICRA projects GDP and GVA growth rates at 7.8% and 7%, respectively, contingent on potential revisions to the nine-month growth figures of FY2023-24.

Nayar highlighted the mixed economic signals, noting a possible revival in rural demand despite the adverse 2023 monsoon rains. She pointed to a year-on-year expansion of 7.7% in domestic retail tractor volumes in Q4 FY2024, reversing a 4% contraction in Q3 FY2024.

"Notwithstanding the overhang of the unfavourable 2023 monsoon rains on agri output, there are some green shoots suggesting that a nascent revival in rural demand may be on the anvil," Nayar said.

Additionally, listed FMCG companies reported recovery in the rural non-food segment, partly driven by marriage season demand and a low base effect. Urban consumption, though uneven, also remained robust.

"This can be partly attributed to the uptick in demand during the marriage season as well as a low base. Additionally, urban consumption is expected to have remained robust, albeit uneven in Q4 FY2024," Nayar added.

Investment activity showed strength in Q4 FY2024, with a surge in new project announcements due to state investor meets in January 2024 and increased project completions. Nonetheless, some investment indicators moderated in the March quarter compared to December, reflecting caution amid the Model Code of Conduct and election uncertainty.

ICRA also noted a 31.6% year-on-year increase in government capital expenditure to Rs 1.3 lakh crore in January-February 2024, though this may have eased in March due to the Model Code of Conduct.

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