India Ratings and Research (Ind-Ra) upgraded GDP Growth estimate to 6.7%

The GDP growth estimate for the current fiscal year has been revised by India Ratings and Research (Ind-Ra) to 6.7% from 6.2%. For the upgrade, it mentioned a strong economy, ongoing capital spending by the government, and the possibility of a fresh cycle of capital expenditure by private corporations.

However, it has been noted that variables that could impede growth include a sluggish global economy, trade uncertainties, and unstable geopolitical environments. These concerns, according to Sunil Kumar Sinha, Principal Economist at Ind-Ra, will keep India's GDP growth in FY24 at 6.7%. The final two quarters of FY24 are anticipated to see a sequential decline in quarterly GDP growth, which was 7.8% YoY in Q1 and 7.6% YoY in Q2 of FY24.

Factors behind this upgrade of GDP Estimates

The Indian economy's resilience, ongoing government capital expenditures, a deleveraged corporate and banking sector balance sheet, the possibility of a new private corporate capital expenditure cycle, and the country's continued strength in business and software services exports, as well as foreign remittances, were all cited by Ind-Ra as reasons for the upgrade. Ind-Ra emphasized that wage growth is essential for consumption growth and that there is a limited demand for consumption.

An increase in real wages will help boost spending

According to the agency's calculations, a 1% rise in real wages may result in a 1.12% increase in real private final consumption expenditure (PFCE). This could have a multiplier impact that raises GDP growth by 64 basis points.

Data from the current fiscal year shows that in the second quarter, real wage growth for households in the lower income bracket was slightly negative, while households in the upper-income bracket saw year-over-year growth of 6.4%. As a result, commodities and services that are mostly used by upper-class households are favored by current consumer demand. According to Ind-Ra, continuous real wage increases for households with lower incomes are essential for a broad and sustainable rebound in consumption demand.

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However, since last year's increase during the same period was 2.5%, PFCE growth is anticipated to gain from the base effect in the second half of the fiscal year. In terms of inflation, Ind-Ra projects average inflation in the retail and wholesale sectors to be 5.3% and 0.6%, respectively, in FY24.

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