Economy News

CRISIL revises FY24 GDP estimate, says growth will moderate in FY25

Growth has been revised for the past two fiscals – the print for fiscal 2023 was revised down 25 basis points (bps) to 7.0 per cent, for fiscal 2022 it was up a significant 60 bps to 9.7 per cent.

While India’s gross domestic product (GDP) exceeded expectations in the third quarter with 8.4 per cent growth from 8.1 per cent in the second quarter, a CRISIL report said that after a strong GDP print in the past three fiscals, it is expected to moderate in the next fiscal year. Growth has been revised for the past two fiscals – the print for fiscal 2023 was revised down 25 basis points (bps) to 7.0 per cent, for fiscal 2022 it was up a significant 60 bps to 9.7 per cent. The Statistics Ministry’s second advance estimates indicate fiscal 2024 GDP growth of 7.6 per cent, surpassing the initial estimate of 7.3 per cent released before the Union Budget in January. It is notable that another growth revision for this year will be done in May with the availability of Q4 numbers, which will have a longer shelf life of a year.

“The transmission of past rate hikes by the Reserve Bank of India to the broader lending rates continues. Rising borrowing costs and regulatory measures to clamp down risky lending could moderate domestic demand next fiscal. On the other hand, another spell of normal monsoon and easing inflation can revive rural demand,” it said. The CRISIL report added that the lowering of the fiscal deficit will mean curtailed fiscal impulse to growth. But good quality of spending would provide some support to the investment cycle and rural incomes. The analysts at CRISIL also expect a normalisation of the net indirect tax impact on GDP witnessed in the current fiscal. 

Domestic savings fell, while foreign funding rose

The government also released details on saving, investment and consumption trends in the economy until fiscal 2023. Fiscal 2023 saw gross domestic savings fall to 30.2 per cent of GDP compared with 31.2 per cent previous year. Household savings reduced to 18.4 per cent of GDP in fiscal 2023 from 20.1 per cent previous year, as their consumption normalised. Private corporate savings remains stable at ~11.2 per cent of GDP. Encouragingly, foreign funding increased last fiscal, accounting for 6.1 per cent of gross capital formation compared with 3.7 per cent previous year.

Factors leading to GDP growth in the third quarter

While overall GDP accelerated to 8.4 per cent in the third quarter, GVA growth moderated to 6.5 per cent from 7.7 per cent. The upswing in the economic growth was mostly on the back of good performance by the sectors such as construction, mining & quarrying and manufacturing. Manufacturing saw the highest growth at 11.6 per cent on-year in the third quarter, albeit some moderation from the 14.4 per cent previous quarter. Construction GVA, meanwhile, grew at a healthy pace despite some moderation (9.5 per cent vs 13.5 per cent) and was supported by continued government capital expenditure in infrastructure. Services growth also picked up at 7.0 per cent as against 6.0 per cent. In the services sector, Trade, Hotels, Transport and Communication (THTC) picked up to 6.7 per cent in Q3 spurred by the festive season. Financial, real estate and professional services also picked up to 7.0 per cent from 6.2 per cent, supported by a pickup in services export growth (5.5 per cent versus 4.6 per cent) and a favourable base effect. And, public administration, defence and other services grew 7.5 per cent vs 7.7 per cent.  Further, agriculture and allied GVA contracted 0.8 per cent in the third quarter (compared with 1.6 per cent growth in second quarter). While partly the result of a highly unfavourable base, it is also due to a fall in kharif output as per the government’s second advance estimates.

Furthermore, details suggested that better growth was almost entirely driven by investments (12.2 per cent in 3QFY24, highest in six quarters vs. 2.8 per cent in 3QFY23). On the other hand, private consumption growth remained weaker at 3.5 per cent YoY in 3QFY24 vs. 1.8 per cent/ 2.4 per cent in 3QFY23/2QFY24. At the same time, government consumption contracted 3.2 per cent in 3QFY24 vs. +7.1 per cent in 3QFY23. 

CRISIL also stated that the drag from net exports eased this quarter. Export growth moderated to 3.4 per cent in the third quarter from 5.3 per cent in the previous one. However, import growth fell to 8.3 per cent following 11.9 per cent growth in the previous quarter.

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