Data released on Thursday (November 30th) showed that India’s economy performed better than expected in the second quarter (July-September), driven by manufacturing prosperity, leading economists to significantly raise their expectations for India’s annual economic growth.
Based on this, Barclays and Citigroup have made the latest forecasts, believing that India’s economy will grow by 6.7% during the fiscal year 2023-2024 ending in March next year, higher than the previous predictions of 6.3% and 6.2%, respectively.
In addition, Wall Street major bank Morgan Stanley has also raised its GDP growth forecast for India’s fiscal year 2024 from 6.4% to 6.9%.
GDP Growth Exceeds Expectations
A report released on Thursday showed that India’s gross domestic product (GDP) grew by 7.6% year-on-year in the three months ending September, surpassing economists’ expectations and significantly exceeding the Reserve Bank of India’s forecast of 6.5%. The GDP for the previous first quarter (April-June) was at a rate of 7.8%.
The last quarter’s economic growth was mainly driven by growth in manufacturing and construction industries, with one major reason being increased government investment before Indian elections.
Currently, Prime Minister Modi’s government is spending huge amounts to promote national infrastructure development and provide subsidies to companies wishing to establish production bases in India. In this fiscal year’s budget, the Indian government has increased capital expenditure for three consecutive years with a significant increase of 33%, reaching INR10 trillion ($120 billion).
Furthermore, businesses are expanding operations which have led to strong private sector investment growth. The fixed capital formation total as an indicator of investment accelerated from a rate of 7.95% in the previous quarter to11 .04% in the last quarter.
India maintains its position as one of the world’s fastest-growing major economies, with its economic growth remaining resilient despite the global economic slowdown and six interest rate hikes by the Reserve Bank of India since last year. This is also good news for Prime Minister Narendra Modi, who is currently seeking re-election in next year’s elections.
Upasna Bhardwaj, economist at Kotak Mahindra, a large private bank in India, believes that “the significant increase in GDP data is a welcome sign, especially against the backdrop of widespread recovery in most non-agricultural sectors. After today’s data release, the annual GDP data has received a significant boost.”
However, strong economic growth may put the central bank in a dilemma as inflation concerns persist and it tries to maintain an inflation rate target of 4%.
The Reserve Bank of India has kept interest rates unchanged at 6.5% for four consecutive policy meetings and may continue to do so at its meeting on December 8th because GDP data indicates that there is no immediate need for an interest rate cut by the Indian central bank.