Growth momentum to continue in December quarter, more comfortable on 6.5% FY24 forecast: CEA

New Delhi: India's economic growth momentum will continue in the October-December quarter and the economy is poised to comfortably clock a 6.5 per cent growth rate for the full fiscal underpinned by investment and consumer momentum, Chief Economic Advisor V Anantha Nageswaran said on Thursday.

He said India is “underestimating” its GDP growth while forecasting a 6.5 per cent expansion for the full fiscal as is evident from the tax buoyancy that the country is witnessing on the back of high tax revenue collection due to strong corporate and bank balance sheet.

“…When you have a tax buoyancy which is as high as 1.9 or close to 2, which is historically unprecedented, then it is quite possible that we are not measuring the economy's underlying momentum… We will keep the GDP growth estimate for the full fiscal at 6.5 per cent but we are more comfortable (with the projection) than before..

“We need to work out the impact of second quarter numbers on full fiscal. The momentum of economic growth will continue in the third quarter as well,” Nageswaran said.

The Indian economy grew 7.2 per cent in 2022-23. The Reserve Bank also expects growth to be 6.5 per cent in the current fiscal.

Briefing reporters after the second quarter (July-September) GDP growth numbers which came in as a surprise at 7.6 per cent, Nageswaran said the Indian economy is maintaining a steady momentum since recovery from Covid and remained the fastest growing major economy in the July-September quarter as well.

“Real GDP growth clocked 7.6 per cent in Q2 FY 2023. The real GDP growth has surprised on the upside by not only being higher than the median projections of 6.8 per cent by professional forecasters but also their highest estimate of 7.4 per cent,” the finance ministry said in a post on X.

Indian economy grew 7.8 per cent in the first (April-June) quarter.

“Investment and consumer momentum will underpin solid growth prospects in the current and next financial year. The Private sector is poised to continue to invest in the economy following the strengthening of corporate and bank balance sheet…"

“The combined order books of capital goods and engineering firms surpassed Rs 8 lakh crore in the second quarter of FY'24… Private sector capital formation is not an aircraft that is waiting for take off but has already started to move and fly,” Nageswaran said.

In terms of the private sector investment activity, Nageswaran said indicators such as the rise in the import of capital goods and the increased production of capital infrastructure goods in the IIP point towards clear uptrends..

He said the RBI's monthly bulletin of November clearly pointed out that the fundraisings done by the private sector are 60 per cent higher in the first half of the current financial year than they were in the second half of the last financial year.

The tax revenue growth so far in the current fiscal is 16.3 per cent, while the nominal GDP growth is 8.6 per cent. The tax buoyancy is at 1.9 so far this fiscal, he said.

“The budget assumed nominal GDP growth of 10.5 per cent and revenue growth also around same level. These numbers tell us that we are probably underestimating our GDP growth and economic activity. India's GDP growth figure may be, based on current statistics, we may be understating (the GDP growth) them, rather than over-stating them,” the chief economic advisor said.

The IMF, World Bank, ADB, and Fitch expect India's GDP to expand 6.3 per cent in the current fiscal. S&P Global Ratings expects India to clock a 6.4 per cent growth this fiscal.