Credit rating and research agency India Ratings and Research (Ind-Ra) expects Indian economy to grow 5.9% year on year during 2023-24. The GDP growth estimate of the agency is lower than the 6.4% real GDP growth projected by the Reserve Bank of India (RBI) for FY24.

The agency says pent-up demand which had provided thrust to the growth in the first half of FY23 is already normalising, exports which had been buoyant are facing headwinds from the global growth slowdown and credit growth is facing tighter financial conditions – all indicating a slower economic growth in FY24.

"Although there are a few positives for India such as - sustained government capex, deleveraged corporates, low NPA in the banking sector, Production-linked Incentive scheme and likelihood of global commodity prices remaining subdued, IndRa believes they are still not sufficient to take the FY24 GDP growth beyond 6%," says Sunil Kumar Sinha, principal economist, Ind-Ra.

According to the agency, there are fault lines in the economic recovery that is happening in the Private final consumption expenditure (PFCE), Government Final Consumption Expenditure (GFCE), and net exports.

"Ind-Ra expects PFCE to grow 6.7% yoy in FY24. Yet, it may not lead to a broad-based consumption demand recovery, because the current consumption demand is highly skewed in favour of the goods and services consumed largely by the households belonging to the upper income bracket. The goods and services of mass consumption have yet not shown a sustained pick-up," Sinha says.

In the case of GFCE, the agency points out that while it had been providing the much-needed support to the economy for a while, averaging 7.9% growth during FY16- FY20, the shift in the government’s focus towards capex spend has resulted in the size of the revenue expenditure in the union budget FY24 being kept at ₹35.02 lakh crore, only ₹0.43 lakh crore higher than the FY23RE of ₹34.59 lakh crore. "Ind-Ra therefore expects GFCE to grow at 2.5% yoy in FY24 (FY23: 3.1%)," Sinha points out.

On net exports front, Ind-Ra expects the share of net exports to GDP to increase to negative 9.2% in FY24 from negative 7.1% in FY23 as merchandise exports are losing steam due to the global growth slowdown and merchandise imports not moderating proportionately.

However, the agency said that GFCF, the second largest component in GDP after PFCE from the demand side is expected to grow 9.6% yoy in FY24 (FY23:11.5%), due to the sustained government capex.

On the supply side, Ind-Ra expects the agricultural sector to grow 3.1% yoy in FY24 (FY23: 3.5% yoy) on the assumption of a normal monsoon in 2023. However, it expects industrial growth to remain tepid in FY24.

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