Govt pegs FY24 GDP growth at 7.3% in another upside surprise

The Indian economy had grown by 7.2 percent in 2022-23.

India's gross domestic product (GDP) is estimated to grow by 7.3 percent in 2023-24, up from 7.2 percent in 2022-23, the Ministry of Statistics and Programme Implementation said on January 5.

The statistics ministry's first advance estimate of growth this year is even higher than the Reserve Bank of India's (RBI) recently revised forecast of 7. 0 percent. The finance ministry, too, has said it expects GDP growth to "comfortably" exceed its forecast of 6.5 percent, although it did not provided an updated numerical forecast following the stunning 7.6 percent growth seen in July-September 2023.

The government's first advance estimate for the current financial year's GDP comes ahead of the February 1 presentation of the interim Budget for 2024-25. The finance ministry will use the first advance estimate of the GDP while making its Budget numbers. More specifically, the finance ministry will assume a certain nominal GDP growth rate for 2024-25 - Moneycontrol has previously reported that this may be 11.0 percent - while deciding its various Budget numbers for next year, including the fiscal deficit target and growth in tax collections.

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For 2023-24, the finance ministry had assumed a nominal GDP growth of 10.5 percent. However, as per the statistics ministry's first advance estimate, India's GDP in nominal terms may grow by only 8.9 percent this year.

On the flip side, agricultural growth is seen slowing down sharply to an eight-year low of 1.8 percent this year, as erratic monsoons take their toll on farm output.

The overall GVA growth for 2023-24 is seen at 6.9 percent, slightly lower than 7.0 percent last year. GDP is the sum of GVA and indirect taxes, less subsidies.

On the expenditure side of things, the picture was more mixed, with private consumption growth seen slowing down sharply to 4.4 percent in 2023-24 from 7.5 percent last year. At the same time, gross fixed capital formation - a proxy for investments - is expected to grow robustly again at a rate of 10.3 percent as against 11.4 percent in 2022-23.

While the headline GDP number will further boost confidence in the Indian economy, it is likely to undergo several revisions. On February 29, the statistics ministry will release GDP data for October-December 2023 and the second advance estimate for the full year. This will be followed by the provisional estimate at the time of release of data for January-March 2024 at the end of May. Subsequently, three revised estimates will be released.

Most economists expected the full-year GDP growth to come in lower than the RBI's official forecast of 7.0 percent. However, the central bank will not be surprised with its prediction being exceeded. In the post monetary policy press conference on December 8, Deputy Governor Michael Patra had said that high-frequency data for October and November - used by RBI economists for their 'nowcast', or an updated or quick forecast - were "very robust".

"So, if you just take October-November data, you will exceed 7 percent (growth in 2023-24). So, at the current time, 7 percent is a conservative estimate," Patra had said.