GDP Growth Forecast Of 7% For Full Year A Tad Optimistic, Say Economists

Economists expect GDP growth for the full year to be lower than official estimates.

The Indian economy grew at a decelerating pace of 4.4% in the October-December quarter, compared to 6.3% in the July-September quarter. For the full fiscal, GDP is estimated to grow by 7% for FY23, though economists believe that it could be a tad bit lower.

The NSO maintained its FY23 GDP growth at 7%–same as the first advance estimates. The implied real GDP growth for Q4FY23 at 5.1% seems slightly optimistic, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. "We pencil in Q4FY23E GDP growth at 4.5%."

While the NSO retained its FY2023 growth at 7%, "we maintain our FY23E and FY24E real GDP growth estimates at 6.8% and 5.6%, respectively, with risks skewed to the downside in FY24E", he said.

The consumer discretionary segment has been showing signs of slowing down in Q4FY23, according to Rakshit. Further, with household savings likely to have normalised, lagged impact of cumulative rate hikes of 275–300 basis points by the RBI, uncertainty on weather patterns and monsoon outturn, and developing markets central banks likely to continue pushing economies to slow down with further rate hikes, the domestic growth trajectory should moderate in FY24, with risks skewed towards the downside, he said.

Based on the GDP numbers and other activity indicators, "we believe that overall growth momentum is softening, as pent-up demand from the lockdown period fades, exports weaken, and tighter fiscal and monetary policy rates take their toll," stated a note by Pranjul Bhandari, chief India economist at HSBC.

"We expect GDP growth to slow from 6.8% in FY23 to 5.5% in FY24."

But it is also important to note that growth over the last few months has become more equitable than before, with the informal sector and rural sector demand showing some uptick after a difficult 2022, Bhandari added.

But much will depend on the winter wheat crop from here on, she cautioned. If a heatwave is avoided and India gets a good crop, rural incomes could continue to rise. But if the crop is damaged by the heatwave, like in March 2022, the gradual rise in rural demand may not continue. As such, the next few weeks remain critical. 

Despite a moderation in headline growth, the seasonally adjusted sequential momentum on quarter-on-quarter basis appears strong, stated a research note by QuantEco.

Outperformance of services over industry and investments over consumption continue to dominate the overall narrative, while the easing of drag on account of net exports offers much needed respite.

Economists at QuantEco continue to estimate FY23 GDP growth at 6.8%, marginally lower than NSO’s estimate of 7%. "Going forward, we continue to expect GDP growth to moderate to 6% in FY24 on account of the complete waning of pent-up demand, the lagged impact of accelerated monetary tightening, gradual fiscal belt tightening, the simmering of geopolitical uncertainty, and adverse spill overs from the expected global slowdown," they said.