The Indian economy outpaced predictions in its growth during July-September, surpassing forecasts by most analysts. However, these projections are dwarfed by the optimistic outlook held by ICICI Securities’ Prasenjit Basu, who envisions even more promising developments in the remainder of 2023-24 and 2024-25.
India’s GDP grew at a faster-than-expected 7.6 percent in the second quarter of 2023-24.
The second-quarter GDP data for India, unveiled on November 30, astonished observers with a growth rate of 7.6 percent—significantly surpassing the consensus forecast of 6.8 percent and showing a slight dip from the 7.8 percent recorded in the April-June period. While many economists swiftly adjusted their projections upwards, their revised figures fall far short of the bold prediction made by the lone optimist.
Prasenjit Basu of ICICI Securities anticipates a remarkable 7.9 percent growth in India’s GDP this year. The July-September data prompted him to increase his already unconventional forecast of 7.6 percent by an additional 30 basis points.
Also read: July-September GDP growth at 7.6%, sharply above forecasts
Basu had initially forecasted a GDP growth rate of 7.5 percent for the second quarter. Notably, ICICI Securities’ projection stands as a notable outlier, with the State Bank of India being one of the closest, albeit lower, forecasts at 7 percent for the fiscal year 2023-24.
The Reserve Bank of India (RBI) is anticipated to revise its growth forecast to 6.5 percent this month, projecting a 6.5 percent growth for the following year. Contrastingly, many non-government economists predict a slightly lower growth trajectory. Nomura, for example, expects a slowdown to 5.6 percent in 2024-25.
Despite widespread expectations of a decline in economic growth in the second half of 2023-24 from the 7.7 percent recorded in April-September 2023, Prasenjit Basu envisions a contrary trend, forecasting a rise to 8 percent. This optimistic outlook is supported by anticipated 8 percent growth in services, 9 percent growth in manufacturing, a recovery in agriculture growth to 3 percent, and continued momentum in the construction sector.
In the first half of 2023-24, the farm sector experienced a growth of 2.4 percent, while manufacturing and construction expanded by 9.3 percent and 10.5 percent, respectively.
The RBI’s latest forecast projects GDP growth at 6.0 percent in October-December 2023 and 5.7 percent in January-March 2024. Basu and Sisaudia anticipate real GDP accelerating to 8 percent growth in the second half of fiscal year 2023-24, reaching an overall growth rate of 7.9 percent for the year.
The higher growth is also expected to lead to a reduction in the Centre’s fiscal deficit to 5.5 percent of GDP, well below the target of 5.9 percent. They attribute this positive fiscal development to a strengthening momentum in investment spending, improvement in private consumption, and the persistence of the construction boom.
In terms of fiscal deficit seasonality, they note a departure from the norm in the last two years. Despite typically exceeding the full-year target in the first 6-8 months due to stronger tax revenue in the final quarter, the fiscal deficit in April-October only amounted to 45 percent of the full-year target. The analysts suggest a 12-month moving average of the fiscal deficit, which moderated to 5.8 percent of GDP in October 2023, slightly lower than the 2023-24 target of 5.9 percent. They anticipate the full-year deficit to further moderate to 5.5 percent of GDP, as tax revenue strengthens in the final months of the fiscal year.