Overall business situation in the country is expected to improve in FY24 on the back of the recovery in services and infrastructure, even as demand for bank credit remains steady, as per the series of surveys by RBI based on responses from corporates and economists.

Most respondents in the services and infrastructure sector were optimistic about their turnover going into FY24 led by improving demand parameters and favourable employment conditions.

While the pace of expansion in expected to be slightly slower in the near term due to input cost and selling price pressures, profit margins are like to be largely maintained led by a rise in selling prices in response to sustained demand.

Cost pressures

On the other hand, manufacturers were less optimistic on demand conditions as reflected in lower expectations for production, order books, capacity utilisation and foreign trade. Cost pressures from financing, purchase of raw materials and wages are likely to continue in the near term with a majority of respondents expecting ‘no change’ in selling prices and profit margins.

However, despite a normalisation in the Business Expectations Index (BEI) to 126.4 in Q1 FY24 from 132.9 in the previous quarter, the index remained highly positive with overall business situation expected to improve further in FY24.

Bankers too retained their optimism on loan demand in FY24, across all major borrower categories, with loan terms and conditions expected to remain easy.

Merchandise exports

Merchandise exports are projected to grow by 4.1 per cent and imports by 16 per cent in FY23 and shrink by 2.3 per cent and 3.8 per cent, respectively, in FY24. The respondents pegged the current account deficit (CAD) at 2.6 per cent of GDP for FY23 and 2.0 per cent for FY24.

Consumer sentiment too remained in positive terrain despite marginally lower optimism, with more than half the respondents expecting the employment scenario to improve over FY24. This is near mid-2019 levels, the survey said.

Household assessment of inflation conditions also improved reflecting more confidence on economic conditions. Though expectations on general prices remained elevated, relatively lower share of households expects prices to rise compared with the previous survey. More than a third of the households said they expect a rise in non-essential outlay over the current financial year.

Economists project CPI inflation at 6.7 per cent for FY23 and 5.3 per cent for FY24. The GDP forecast for FY23 has been revised upwards by 10 bps to 7 per cent.

Annual growth in real private final consumption expenditure (PFCE) is seen at 6.1 per cent and for real gross fixed capital formation (GFCF) at 7.1 per cent in FY24. Real gross value added (GVA) growth projection is unchanged at 5.8 per cent.