Per the CRISIL analysis, the first advance estimates bake in a slowdown in the second half relative to the first half of this fiscal. The latter half slowdown has been driven by weaker private consumption, especially rural demand, and the bite of rising interest rates.
While India’s real GDP growth in 2023-24 is estimated to 7.3 per cent, in comparison to 7.2 per cent a year ago, according to the first advance estimates of national income released by the National Statistical Office (NSO), CRISIL expects the pace of India’s economic growth in the next fiscal to slow down as high interest rates and slowing global growth bite.
Dharmakirti Joshi, Chief Economist, CRISIL Ltd, said, “Growth estimates for this fiscal have surpassed our expectations. High frequency indicators such as the S&P Purchasing Managers’ Index show activity remaining in the expansion zone in the third quarter for both manufacturing and services. Even as the agricultural economy slowed sharply this year following a weak monsoon, the surge in the non-agricultural economy has more than offset it.” Weak agri growth (1.8 per cent vs 4.0 per cent previous fiscal) was seen as the result of poor kharif output and onging risks to rabi crops. Kharif output — impacted by the uneven monsoon — is estimated to be 4.6 per cent lower on-year. Rabi sowing has also slowed as per latest data available, as water reservoir levels are lower on-year.
He further stated that the government-driven investment push, along with easing input cost pressures for industry, has also played a major role in shoring up growth. However, services have been slowing with waning pent-up demand (post pandemic). The exception has been financial, real estate and professional services, which has powered ahead on the back of robust growth in banking and real estate.
Nevertheless, per the CRISIL analysis, the first advance estimates bake in a slowdown in the second half relative to the first half of this fiscal. The latter half slowdown has been driven by weaker private consumption, especially rural demand, and the bite of rising interest rates.
The slowdown is expected to continue in the next fiscal. But why?
First and foremost is the slowing global growth will have an impact on India’s economic growth the next year. S&P Global expects global growth to slow to 2.8 per cent in calendar year 2024 from 3.3 per cent previous year. The United States (US), which beat expectations last year, is expected to slow to 1.5 per cent (vs 2.4 per cent), as monetary policy transmission picks up. The slowing growth in the US will weigh on India’s growth, with the country being the largest export market for India.
Next, the rising interest rates will also have an impact on growth. Financial conditions, CRISIL said, are expected to be less supportive for domestic demand next year. The transmission of past rate hikes by the Reserve Bank of India is still in playing out, which suggests a further rise in lending rates. The central bank’s recent regulatory measures of increasing risk weights on consumer credit exposures of banks and NBFCs will further affect credit growth into next year.
According to the NSO data, nominal GDP is estimated to slow to 8.9 per cent this fiscal compared with 16.1 per cent previous year. This is lower than 10.5 per cent estimated during Budget 2023. Moderation in real GDP growth, coupled with a sharp slide in GDP deflator (1.4 per cent on-year this fiscal versus 8.2 per cent previous year) are behind the slowdown in nominal GDP. WPI inflation has declined significantly this fiscal (-1.3 per cent in April-November 2023), which drove the fall in GDP deflator.
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