Faster-than-expected GDP growth in FY24 driven by government activism: Nomura

They estimate gross value added (GVA) growth for FY24 to be 6.9 percent yoy, which is lower than FY23's 7 percent.

Faster-than-expected gross domestic product (GDP) growth in FY24 is being driven by government activism, broking firm Nomura has said in a report.

Real private consumption is expected to take a significant hit from inflation, which could see the final growth estimates revised downwards to 7 percent, the brokerage said.

The report came after the National Statistical Office (NSO) issued an advance estimate of 7.3 percent year-on-year (YoY) for FY24, up from 7.2 percent in the previous year.

"Faster growth has primarily been driven by government activism – reflective in higher investment growth (led by public capex) and government spending (on consumption)," Nomura's economists said in their recent First Insights note.

The growth estimates are higher than the Reserve Bank of India's 7 percent and the brokerage's forecast of 6.7 percent, they said.

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"Real private final consumption growth, by contrast, is likely to ease to 4.4 percent y-o-y in FY24 from 7.5 percent in FY23, likely due to higher inflation eroding real purchasing power," they added.

This would likely to weigh on the growth in the second half of this fiscal, particularly with the government looking to consolidate its expenses.

While the April-September GDP growth was at 7.7 percent, the economists said advance estimate suggested that it would moderate to 7 percent in the second half (October-March).

This will be from "lacklustre private consumption, moderation in government spending, but investment and export growth picking up".

The final growth estimates could be revised downwards to 7 percent, the brokerage said.

Will this lead to a fiscal slip in FY24?

"No," the report said. "While a lower nominal GDP in FY24 will statistically raise the fiscal deficit to GDP ratio by 0.1pp, we expect the government to still meet its FY24 fiscal deficit target of 5.9 percent of GDP due to higher direct taxes and dividends and its focus on expenditure consolidation in remaining months."

When looking at economic growth from the supply side, they estimate gross value added (GVA) growth for FY24 to be 6.9 percent YoY, which is lower than FY23's 7 percent.

This decline would be "led primarily by weaker agricultural output growth", the report said.

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"Services GVA growth is expected to moderate to a still-healthy 8.1 percent y-o-y in FY24 from 9.5 percent in FY23, with strong construction growth, while industrial GVA growth is projected to rise by ~7 percent, up from 2.4 percent in FY23, reflective of a positive base effect and lower input costs."