India’s GDP is expected to grow at a rate of 8.5% in the first quarter, as reported by ICRA. However, there were several factors that put downward pressure on GDP growth during this period. One of these factors was unseasonal heavy rains, which adversely affected agricultural output. Another factor was the delayed impact of monetary tightening measures that were implemented earlier. Additionally, weak external demand also played a role in dampening economic growth. In a recent report, ICRA Ratings stated that India’s economic growth is expected to accelerate to 8.5% in the April-June period of the current fiscal year.
This represents a significant improvement from the 6.1% growth rate witnessed in the preceding January-March quarter. ICRA attributed this faster growth to a supportive base and the recovery of the services sector. While ICRA’s estimate is higher than the forecast provided by the Reserve Bank of India (RBI), its chief economist, Aditi Nayar, has cautioned that the second half of the fiscal year may present challenges that could dampen growth. Factors such as erratic rainfall patterns, narrowing differentials with year-ago commodity prices, and a possible slowdown in government capital expenditure momentum due to the approaching parliamentary elections may limit growth. Despite these headwinds, ICRA has maintained its estimate of 6% real GDP growth for the fiscal year 2023-24, which is slightly lower than the RBI’s projection of 6.5%.
The agency has also projected that gross fixed capital formation in the first quarter of fiscal year 2023-24 would be in double digits based on the strong year-on-year growth performance of various investment-related indicators. Furthermore, ICRA has highlighted that the aggregate capital outlay and net lending of 23 state governments, as well as the Government of India’s gross capital expenditure, have increased significantly in the first quarter of fiscal year 2023-24. Additionally, capex-related external commercial borrowings have risen in Q1, surpassing the levels recorded for the entire fiscal year 2022-23.The services sector has experienced substantial growth, with services’ gross value added rising to 9.7% in the first quarter of fiscal year 2023-24. However, the electricity generation sector has witnessed a decline in growth due to an unfavorable base and excessive rainfall in the first half of the quarter.
While India’s GDP growth is expected to improve in the first quarter, there are potential challenges ahead that may impact the overall growth trajectory. It is important to monitor factors such as rainfall patterns, commodity prices, and government capital expenditure in order to assess the future direction of India’s economy.