After India’s real Gross Domestic Product (GDP) growth for the second quarter sprang a surprise at 7.6 per cent, forecasters upgraded their projections for FY24 to 7 per cent. But the First Advance Estimates for FY24 GDP growth from the Central Statistics Office suggests that more upgrades will follow. The CSO has now estimated that India’s real GDP will likely expand by 7.3 per cent in FY24. Should this come good, it would be a creditable performance achieved on a high base (real GDP grew 7.2 per cent in FY23). With this, India would have managed a 22 per cent absolute expansion in its economic activity and a 4.2 per cent annualised growth in the five-year term of the outgoing NDA regime, despite the Covid contraction. In the last three years, real GDP numbers in First Advance Estimates have been pegged upwards by 1-2 per cent in subsequent revisions.

A break-down of the data shows that the CSO does not expect any big shift in economic drivers in the second half of the year. Gross fixed capital formation, projected to grow 10.3 per cent in FY24 (11.4 per cent in FY23), will remain the hero. This is being fuelled by the Centre’s 33 per cent expansion in capital outlays for this fiscal. But with fiscal tightening on the cards, similar growth in outlays may be hard to deliver next year. Sustaining the investment juggernaut from here on will thus fall to the private sector, which will need to be nudged to shift from maintenance capex to greenfield projects. The end of election-related uncertainty and positive GDP prints will hopefully provide a catalyst to business confidence in the latter half of FY25. With government consumption likely to remain low-key owing to tighter deficit targets, all eyes will be on a revival in private consumption to sustain GDP growth. On this score, the Advance Estimates does not have much good news to offer, as it projects private consumption growth to slow to 4.4 per cent in FY24 from 7.5 per cent last year. This would be a six-year low.

For it to improve, private consumption will need to be broad-based from credit-fuelled spending on premium products by affluent urban consumers, to more balanced demand for essential goods and services, from lower-income and rural consumers. On this, the sequential deceleration in employment-intensive sectors such as agriculture, manufacturing and trade, hotels, transport and communications in the second half, is a dampener.

While real GDP numbers have surprised on the upside, nominal growth pegged at 8 per cent for FY24 compared to 15.4 per cent last year, can prove a wet blanket. High nominal GDP growth gives the Centre headroom to stay within its fiscal deficit and debt-to-GDP targets even if its spending overshoots. The sub-par nominal growth forces the Centre to make the devil-and-the-deep-sea choice of either belt-tightening in Q4 to keep to the 5.9 per cent deficit target, or risk an overshoot by keeping up its spending that has been powering the economy.

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