India’s GDP growth, in the First quarter of 2023-24 which stood at 7.8% has led Nomura and Deutsche Bank to revise their forecasts. Nomura has adjusted its projection to 5.9% while Deutsche Bank now expects a growth rate of 6.2%. These revised forecasts are slightly lower than the government and Reserve Bank of India projection of 6.5%.
Nomura and Deutsche Bank have revised their growth forecasts for India’s year 2024. Nomura has increased its projection by 0.4% while Deutsche Bank has raised it by 0.2%. These revisions come after India’s GDP growth rate, for the quarter of 2023 24 was reported at 7.8%.
Both bank’s forecasts still fall below the projections made by the government and the Reserve Bank of India (RBI) which expected a growth rate of 6.5%.
According to Nomura economists Sonal Varma and Aurodeep Nandi, “actual GDP growth in April June along with tracking estimates for July September surpasses our expectations.” Consequently, they have raised their GDP growth projection for 2023 to 6.3% from the estimate of 5.9%. For the year 2023 24, their new projection is now at 5.9% up from the estimate of 5.5%.
However, considering a growth outlook in 2024 (2.3% compared to the earlier forecast of 2.8% in 2023) Nomura has lowered its GDP growth forecast for fiscal year 2024 25 to 5.6% from the previous estimate of 6.5%.
While India’s high growth rate of 7.8% in April and June aligns, with economists’ expectations it falls short by twenty basis points compared to the RBI forecast. For the year 2023 24, both the government and the RBI are optimistic, about a 6.5 percent growth in GDP, which is higher than most predictions.
However, concerns and uncertainties lie ahead. Varma and Nandi noted that the government and RBIs’ positive outlook is based on factors such as the downturn having a muted impact sustained growth in the services sector continued emphasis on public capital expenditure (capex) and decreasing inflationary pressures.
In contrast to this optimism, we maintain a perspective for the upcoming quarters. India is currently experiencing a period of unpredictable monsoons. Overall monsoon levels are tracking 9 percent below normal with rainfall in southern, eastern, and central regions.
While Nomura has significantly reduced its growth forecast for 2024 25 Deutsche Bank still expects growth to reach 6.5 percent per year.
According to Kaushik Das, Deutsche Bank’s Chief Economist for India and South Asia India’s growth is likely to decelerate in the following quarters of 2023 24 due to delayed effects of tightening policies, global economic slowdown intensification subsiding domestic pent-up demand, and potential risks associated with weather-related factors.
Nevertheless, there could be some support for growth at around 6.2 percent through the government’s focus on capex initiatives and potential increase, in investment as capacity utilization levels rise.
“The final point holds significance in our perspective. It has been a while since the Indian corporate sector made investments. However with the improvement, in capacity utilization companies might start considering capital expenditure for the cycle ” Das expressed.
As growth is projected to decelerate in the following quarters. Even the Reserve Bank of India anticipates GDP growth to decline to 6.5 percent from July to September 6 percent from October to December and 5.7 percent from January to March 2024.
Nomura predicts that the monetary policy committee of the bank may reduce the repo rate by 100 basis points in 2024. The initial reduction, in interest rates is expected to take place in February.
Note-: As a reminder, one basis point represents one-hundredth of a percentage point.
