India’s gross domestic product (GDP) may expand at a higher-than-expected rate of 7.3% in real terms in the current fiscal, compared with 7.2% last year, according to the first advance estimates released by the National Statistical Office (NSO) on Friday.
The estimate, made on the basis of the national income data computed for the first half of the year and several high-frequency indicators for the October/November period, is significantly higher than forecast by most agencies, including the Reserve Bank of India (RBI), which in December raised the growth forecast sharply from 6.5% to 7%.
Expectations that growth deceleration in the second half may be marginal (with implied growth of 7%), robust goods and services tax (GST) collections, and lesser subsidy outgo, boosted the headline number.
Lack of adequate allocations for discrepancies between expenditure and production estimates of the GDP also boosted the headline figure, as the sharp rise in tax collections are yet to be reconciled with key expenditure components.
This would mean the first advance estimate may undergo significant revisions later in the light of robust data.
According to NSO, investment pace is expected to gather incremental momentum in the second half, taking the share of gross fixed capital formation in GDP to close to the coveted figure of 35% in FY24, the highest level in the current series with base year 2011-12. The growth of consumption, the largest part of the GDP from the expenditure side, is, however, seen to grow at just 4.4% on year in H2, compared with 4.5% in H1.
Key services sectors are also seen to lose pace sequentially in the second half (from 7.9% to 7.5%), which would mean their growth would plunge from 9.4% in FY23 to 7.7% in the current year.
GDP at current prices or nominal GDP is seen to grow at just 8.9% in the current fiscal, sharply down from 16.1% in FY23, to `296.58 trillion. This compares with the nominal GDP size of `301.75 trillion that the Union Budget FY24 factored in, implying that if non-debt receipts come in at the same levels as budgeted, spending would have to be curbed by around `30,000 crore from the budgeted levels to meet the fiscal deficit target of 5.9% of the the GDP.
But such expenditure cut may not become necessary to stick to the deficit target, given both tax and non-tax revenues are expected to exceed respective budget estimates significantly, and more than offset a shortfall in disinvestment revenue. Finance minister Nirmala Sitharaman and other government functionaries have reiterated that no fiscal slippage would not be allowed.
Responding the International Monetary Fund’s forecast of India’s general government debt overshooting 100% of the GDP under a worst-case scenario by FY28, the finance ministry has recently stated the Centre is “on track to achieve its stated fiscal consolidation target” of reducing fiscal deficit below 4.5% by FY26.
Manufacturing sector’s growth for FY24 is seen at 6.5% as compared to 1.3% in FY23, although this would still mean the tempo seen in H1 (9.3%) can’t be maintained in H2 (3.9%). Experts are of the view that the Centre may fall short of its budgeted capex target — meaning GFCF’s growth this year may be lower than projected by the NSO in the first advance estimate.
The construction sector’s growth is seen by the NSO at 8.3% in FY24, lower from 9.0% in FY23; and the agriculture sector’s is seen at 1.8% compared with 4%. That requires roughly the same pace of year on year growth for construction sector in the second half as in the first, while indicates that the expansion of farm sector would be at a lower pace in the second half.
On the expenditure front, private final consumption expenditure, as shown by the private final consumption expenditure (PFCE), is projected at 4.4% in FY24, lesser than 7.5% in FY23, and government final consumption expenditure’s (GFCE) growth is seen at 4.1%, sharply higher than 0.1% last year.
According to India Ratings and Research (Ind-Ra), the PFCE’s growth in FY24 would be slowest since FY03. “The ongoing consumption demand continues to be an area of worry due to its skewness in favour of goods and services which is demanded and consumed largely by the households belonging to the upper income bracket,” said Ind-Ra economists in a note.
“For a sustained PFCE growth, recovery in consumption demand has to be more broad-based, where a significant contribution comes from goods and services consumed by households belonging to the lower income bracket as well,” they said.
Further, the growth in gross-value-added (GVA) is projected to be 6.9% in FY24, 10 bps lower than FY23; whereas the GDP is seen to be 10 bps higher. This means the higher growth in GDP seen this year is a consequence of high growth in indirect tax collections. The growth in net taxes on products is projected at 12.5% in FY24, as against 10.1% in FY23.
Also, a deep-dive into the expenditure components reveal that the contribution of net exports in GDP growth was (-)3.4% in FY24 compared to (-)1% in the last; while the contribution of discrepancy in growth was 4% in FY24 as compared to 0.4% in FY23.
“Discrepancies continue to account for the majority of overall FY24 GDP growth (more than 50%),” said Gaura Sen Gupta, economist, IDFC FIRST Bank.
Ind-Ra’s economists said that except GFCE, growth of all demand side drivers slowed down in FY24, but these growth numbers may change later when the discrepancies amounting to Rs 2.6 trillion is allocated.
Net (post-devolution) tax revenue during April-November 2023 was at Rs 14.36 trillion, an increase of 17.2% on year as against the required rate of 11% to meet the FY24 target. If the current growth rate is maintained, the Centre’s net tax revenues could exceed FY24BE by Rs 1.23 trillion.
Similarly, in April-November 2023, the non-tax revenues at Rs 2.84 trillion, which is 94.3% of the annual target, indicating that receipts under this head would exceed the budget target by a decent margin. The extra receipts would comfortably cover the likely shortfall of around Rs 30,000 crore in disinvestment receipts.
Also, the expenditure on explicit subsidies are expected to be Rs 4 trillion in FY23 compared with Rs 5.49 trillion in FY23.