Icra forecasts 8.5% GDP growth in Q1

India’s economic growth will accelerate to 8.5 per cent in the April-June period of the current fiscal from the 6.1 per cent growth rate witnessed in the preceding January-March quarter, Icra Ratings said in a report on Tuesday.

The rating agency attributed the faster growth to a supportive base and also a recovery in the services sector. Though its estimate is higher than the RBI’s forecast of 8.1 per cent, Icra’s chief economist Aditi Nayar said the second half of the fiscal is likely to witness headwinds, which will prove a dampener.

Nayar said “erratic rainfall, narrowing differentials with year-ago commodity prices, and possible slowdown in momentum of government capex as we approach the Parliamentary elections will limit the growth, and maintained her 6 per cent real GDP growth estimate for FY24 which is lower than RBI’s 6.5 per cent.” In the first quarter, unseasonal heavy rains, lagged effect of the monetary tightening and weak external demand exerted a downward pressure on GDP growth, she said. Factors like a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure, and sharply lower prices of various commodities which expanded margins in some sectors boosted growth in the June quarter, she said.

The agency projected that the gross fixed capital formation (GFCF) expansion in Q1 FY24 to be in double digits, based on the robust year on year growth performance of a majority of the investment-related indicators. The aggregate capital outlay and net lending of 23 state governments (except Arunachal Pradesh, Assam, Goa, Manipur and Meghalaya), and the government of India's gross capital expenditure expanded by a sharp 76 per cent to Rs1.2 lakh crore, and 59.1 per cent to Rs2.8 lakh crore, respectively, in Q1 FY24, it added.