Q1 GDP growth could surge to 8.3-8.5%: SBI, ICRA

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If the policymakers and the markets have been jittered by the sharp rise in retail inflation in July, here are some early growth projections to soothe their nerves. Prominent economists have pegged the GDP growth figures for Q1 of FY24 well above 8%. While ratings agency ICRA has predicted a growth rate of 8.5% in the April-Jun period, the country’s largest commercial bank SBI pegged it at 8.3% — both substantially higher than the 8% forecast by the Reserve Bank of India.

Both ICRA and SBI have substantially attributed the spurt in growth to the capital investment push by the Centre and the states and the charged performance by the service sector. ICRA also pointed out to the benefits of a lower base contributing to this growth expectation. The official data on growth will be released later in August. GDP had grown at 6.1 per cent in the January-March 2023 (Q4 of FY23) as compared to the corresponding period a year earlier.

The EcoWrap note of the State Bank of India mentioned that it economists tracked 30 high frequency indicators to arrive at the estimate of 8.3% growth of GDP. “There has been a surge in capital expenditure in Q1, with the central government spending 27.8 per cent of budgeted, while states at 12.7 per cent of budgeted,” the EcoWrap note said. The report also observed that states such as Andhra Pradesh, Telangana and Madhya Pradesh where elections are due have registered capital expenditure growth of up to 41%. The booming services sector also contributed handsomely to the expected surge in GDP growth rates. Both the rating agency and the bank mentioned the performance by the biggest sector of the Indian economy in its report.

Another factor boosting the growth process could be expanding profit margins of India Inc. Incidentally, RBI expects the economy to grow at 6.5 per cent in the current financial year. And growth for the entire current fiscal year is the area where ICRA and SBI have differed in their views. While ICRA took a rather sober view of the growth drivers in the later part of the year and pegged GDP growth forecast at 6%, SBI expected the growth process to continue and eventually end the year with 6.7%.

ICRA’s chief economist Aditi Nayar was wary of possible headwinds emerging strong in the second quarter of the year. These might come in the form of erratic rainfall – an outcome of the dreaded EL Nino – and shrinking differentials with commodity prices and year ago. She also mentioned that overall investment I the infrastructure might slow doe in the country due to the general elections expected next year. SBI mentioned in the Q1 estimates that the banking sector witnessed high credit growth. It also mentioned how banks were in a better position to meet credit demand due to their leaner and fitter balance sheets.

However, one factor that might have a sobering effect on growth is retail inflation. While retail inflation surged to 7.44% — much beyond the RBI’s tolerance ceiling of 6% — it is unlikely to drop sharply in the coming months thanks to continuous upward pressure on the price of vegetables and other commodities. In a dipstick survey carried out by the Business Standard earlier this week CEOs across the country pointed out that inflation remains a point for concern. The RBI has also emphasised that inflation could be a GDP dampener and they have to constantly be vigilant on this front.