India's GDP growth estimated to have risen to 4-quarter high of 7.7% in April-June

The Indian economy had grown by a faster-than-expected 6.1 percent in January-March.

The Indian economy likely grew at the fastest pace in four quarters in April-June, with economists expecting GDP to have grown by 7.7 percent on a year-on-year basis, according to a Moneycontrol survey. According to the same survey, economists see GDP growth falling to a three-year low of 6.2 percent for 2023-24 as a whole.

The statistics ministry will release GDP data for April-June at 5:30 pm on August 31.

India's GDP had grown by 6.1 percent in January-March and 13.1 percent in April-June 2022. In 2022-23, the economy had expanded by 7.2 percent.

"We expect estimate GDP growth at 7.8 percent (with upside risks of an above 8 percent print) versus 6.1 percent in January-March, driven by strong domestic demand, coupled with the government's capex push, likely to be key growth drivers even as net exports are expected to be a drag," Kanika Pasricha, economist at Standard Chartered Bank, said.

Following the announcement of a record capex target of Rs 10 lakh crore for 2023-24, the Centre has started the year in earnest, with its investments in April-June amounting to Rs 2.78 lakh crore, up a huge 59 percent from the same quarter last year.

Sectoral expectations

To be sure, the base effect continues to be favourable. However, economists see demand being strong, particularly for services. According to ratings agency ICRA, gross value-added (GVA) of the services sector likely rose by 9.7 percent in April-June, sharply higher than the 6.9 percent growth recorded in January-March.

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"As many as 11 of the 14 high-frequency indicators pertaining to the services sector recorded a year-on-year growth in April-June, with the pace of expansion ranging from 0.3 percent (telephone subscribers) to 18.6 percent (domestic airlines passenger traffic)," ICRA said, although it added that commercial vehicles sales were down 3.3 percent while air cargo traffic was lower by 0.4 percent during the quarter.

ICRA's estimate, along with that of Sunidhi Securities, for April-June GDP growth is the highest at 8.5 percent. The lowest estimate is Societe Generale's 6.7 percent.

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In January-March, manufacturing GVA growth was 4.5 percent. This number is set to rise in April-June thanks to global commodity prices easing and improvement in volumes and margins.

The other big driver of the Indian economy, the agricultural sector, is expected to stay resilient and post a GVA growth of 4-4.5 percent, down from 5.5 percent in January-March, the highest in three years.

Policy impact

At 7.7 percent, economists' expectation of the April-June GDP growth number is 30 basis points lower than the Reserve Bank of India's (RBI) forecast of 8 percent. Similarly, the consensus for the full-year growth figure is also 30 bps lower than the government and the RBI's projection of 6.5 percent.

Economists see growth slowing down more than the authorities due to the impact of tighter monetary conditions and weakening export performance. But with the GDP data likely to show strong domestic demand, the RBI's Monetary Policy Committee (MPC) may continue to keep the repo rate unchanged at 6.5 percent for several more months.

"We continue to believe that the window for rate cuts is closed for now, and the RBI is likely to be on hold for the rest of the fiscal year, in our view, with only a strong growth shock likely to stir it into action," noted Barclays' economists.

Beyond April-June, the Indian central bank sees GDP growth slowing down sharply to 6.5 percent in July-September, 6 percent in October-December, and 5.7 percent in January-March 2024, as the favourable base effect continues to fade.