Indian economy seen to exceed growth estimates after strong Q2 beat

Workers fasten iron rods at the construction site of a commercial building in Kolkata, India, Feb 1, 2021. REUTERS/Ranita Roy/File photo

MUMBAI  -The Indian economy is projected to grow at a 6.7 percent to 7 percent rate in the fiscal year ending March 31, 2024, several economists said, upping their projections after the country blew past growth estimates for the July-September quarter.

The country’s economy expanded 7.6 percent in the July-September quarter, trouncing estimates of a 6.8- percent rise, data released on Thursday showed.

Stronger-than-expected growth in the first half of the year, along with continued government spending and some revival in private investment has prompted economists to raise their growth forecast to higher than the government’s estimate of 6.5 percent.

“With 7.7 percent real GDP growth in the first half of 2023-24, the overall growth for full fiscal would be around 7 percent…though there are chances that it may cross the 7 percent mark,” said Saumya Kanti Ghosh, chief economist at State Bank of India. He had an earlier forecast growth at 6.7 percent.

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The government stuck to its 6.5 percent growth forecast for the year, but chief economic advisor V. Anantha Nageswaran said he was “more comfortable with an upside to this projection than before”.

Citigroup revised its growth forecast for the financial year upwards by 50 basis points to 6.7 percent citing a pick-up in investment activity.

Gross fixed capital formation, an indicator of investment, rose 11 percent in the July-September quarter.

“This reaffirms our view of sustained investment recovery,” the Wall Street bank’s chief India economist Samiran Chakraborty said in a note.

“While the 13.3 percent growth in construction gross value added indicates public infrastructure/residential capex led investment growth – such strong gross fixed capital formation data might also suggest an element of private capex recovery,” Chakraborty said.

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DBS now sees growth in the current financial year at 6.8 percent from 6.4 percent earlier.

“There was a broad-based improvement in investments, reflecting higher state and center spending alongside recovery in the real estate sector and inventory demand ahead of festivities,” said economist Radhika Rao in a note.

“This made up for the softness in consumption spending and a negative contribution by net exports”.

Consumption remained weak, growing just 3.1 percent in the second quarter of the year signaling that parts of the economy are still to recover.

“Rural demand remains weak, reflecting low real wage growth and uneven monsoon,” said Gaura Sen Gupta, economist at IDFC First Bank Economics Research, which has upped its growth forecast for the year to 6.7 percent from 6.2 percent earlier.