According to Radhika Rao of DBS Bank, India's GDP growth in FY24 is expected to reach 8%, with infrastructure spending exceeding consumption in FY25. On Friday, May 31, India reported  its gross domestic product (GDP) for the January-March quarter of fiscal 2023-24 (Q4FY24) and the full year (FY24). The macroeconomic data will be released just days before the highly anticipated Lok Sabha election results 2024, which are scheduled for June 4.

Rural demand picked up in the last quarter of 4QFY24 (1Q24), as seen by an increase in FMCG volume sales, two-wheeler sales, and a decreased unemployment rate, but demand for MNREGA fell due to the commencement of the rabi harvesting season near the end of the quarter.

It is predicted that the GDP growth forecast of 7% year on year would be considered, bringing the full-year FY24 growth closer to 8%. According to the Indian GDP Nowcast model, which uses statistically significant variables to produce a forward-looking evaluation, growth in 1Q24 and 2Q24 (4QFY24 and 1QFY25) will be around 7%.

Based on IIP trends in 1Q24, sectors such as basic metals, transportation equipment, pharmaceuticals, petroleum, and chemicals have returned to pre-pandemic levels. Meanwhile, large-scale electronics, particularly telecom equipment, continue to profit from improved production trends and value chain indigenisation.

Business confidence remained positive, as seen by optimism about output and capacity utilization, as well as a record high in e-way bills and a double-digit increase in toll receipts in March. General government capital investment increased ahead of the elections, while the infrastructure industry index, which includes steel output, slowed near the end of the period.

Robust Economic Structure Development

Corporate India registered a considerable increase in revenue growth in 4Q, mostly led by BFSIs and automakers, outside of which net profit declined. On the external trade front, total exports (goods and services) increased faster than imports, helping to nearly halve the trade deficit and reducing the impact on headline GDP.

The emphasis on infrastructure and developmental spending is anticipated to continue, with FY25 on track to be the fourth consecutive year in which investment growth outpaces consumption, resuming the trend last seen in 2004-2008. Currently, capex allocations have been prioritized with a concentration on trains, roads and highways, defense, and transfer to states in the interim Budget. 

The emphasis on infrastructure and developmental spending is anticipated to continue, with FY25 on track to be the fourth consecutive year in which investment growth outpaces consumption, resuming the trend last seen in 2004-2008. Currently, capex allocations have been prioritized with a concentration on trains, roads and highways, defense, and transfer to states in the interim Budget. 

There is a minimal inventory of completed dwellings. In addition, the background for private sector corporate capex to expand remains solid, owing to deleveraged players, better bank balance sheets, and a strong structural push (reduced taxes, PLI programs, etc.). The main danger on this front is a deterioration in the global economic outlook and/or sustained slowing in domestic spending.

The incoming government's initial focus will be the comprehensive budget, which might be presented in July. This Budget is expected to follow the contours of the interim edition released on February 24, focusing on fiscal consolidation, ongoing emphasis on capex, and avoiding outright populism. 

The FY25 deficit target was established at -5.1 percent of GDP, which was lower than market estimates, with the intention of moving to the -4.5 percent target in FY26. Government cash reserves are large, and revenues have been strong (including the windfall from the RBI excess transfer), leaving enough room to reduce borrowings if necessary. While an explicit demand stimulus is unlikely, there is a tiny chance of actions to enhance discretionary demand through allowances or rebates.

Rules  & Guidelines

The RBI monetary policy committee is anticipated to analyze domestic and global trends when deciding on the next course of action for monetary policy. In the near term. A heatwave with reservoir levels at multi-year lows could have a negative influence on farm productivity, which should be monitored.

Encouragingly, the intensity has diminished in the eastern and southern zones, while temperatures remain high elsewhere, affecting zaid crops. The weather agency predicts a regular monsoon, accompanied by a weakening El Nino. With reservoir levels lower than last year, the southwest monsoon's geographical spread becomes more crucial.  

Tying these factors together, India's rate cuts are likely to be postponed due to stronger growth momentum, above-target inflation, and US rates that are forecast to remain higher for longer. An increase in geopolitical tensions, particularly in the Middle East, and the subsequent impact on oil and commodities prices will be closely monitored.