ICRA pegs India's Q4 GDP growth at 6.7%, FY24 growth at 7.8%

ICRA said the gap between gross domestic product (GDP) and gross value added (GVA) growth is likely to moderate to 100 basis points (bps) in Q4 FY2024 from the particularly high of 185 bps in the previous quarter.

New Delhi: India's economic growth is likely to decline to 6.7 per cent in the January-March period, the lowest in four quarters, dragged by weakness in agriculture and manufacturing sectors, rating agency ICRA said on Tuesday.

Weakness in the fourth quarter numbers will drag the overall gross domestic product (GDP) growth to 7.8 per cent for the full fiscal 2023-24. In the first three quarters of 2023-24, the GDP expanded at above 8 per cent. It grew at 8.2 per cent in Q1; 8.1 per cent in Q2 and 8.4 per cent in the third quarter.

ICRA Chief Economist, Head-Research & Outreach Aditi Nayar said the lower volume growth coupled with diminishing gains from commodity prices dampening the profitability of some of the industrial sectors is expected to dampen India's GVA growth in Q4 FY2024.

“Lower volume growth coupled with diminishing gains from commodity prices dampening the profitability of some of the industrial sectors is expected to dampen India’s GVA growth in Q4 FY2024,” said Aditi Nayar, Chief Economist at ICRA.

As per ICRA, the growth in the gross value added (GVA) is estimated to ease to 5.7 per cent in Q4 from 6.5 per cent in the previous quarter. Industrial sector growth is likely to moderate to 7.9 per cent in the January-March period from 10.4 per cent recorded in the third quarter. Services sector GVA is estimated to decline from 7 per cent in Q3 to 6.2 per cent in the fourth quarter of the fiscal year ended March 2024.

The agricultural GVA is expected to contract for the second straight quarter in Q4 (-0.5 per cent), at a pace similar to Q3 (-0.8 per cent), amid weak trends in the rabi output (barring wheat) and concerns related to yields, the rating agency noted in the report.

GVA is the value of goods and services produced in a country minus input costs, including raw materials. It adjusts GDP by adding subsidies and deducting taxes on products.

According to ICRA, the gap between the GDP and the GVA growth is likely to moderate to 100 basis points (bps) in Q4 FY2024 from the high of 185 bps in the previous quarter.

This will be due to an expected lower expansion in the net indirect taxes in Q4 owing to a narrower dip in the subsidy outgo (-22.8 per cent in Jan-Feb 2024; -53.6 per cent in Q3 FY2024).
For the full year 2023-24, ICRA expects the GDP and GVA growth to print at 7.8 per cent and 7.0 per cent, respectively, unless the growth for the first three quarters is revised.

The year-on-year growth of the capital outlay and net lending of 24 state governments (except Arunachal Pradesh, Jharkhand, Manipur, and Goa) is estimated to decline to 3.5 per cent in Q4 from 11.5 per cent in the previous quarter. This sharp decline is estimated partly due to base effect as growth in the fourth quarter of 2022-23 was sharply higher (26.4 per cent) than the third quarter (17.2 per cent).

While the central government’s capital expenditure expanded by 31.6 per cent YoY to Rs 1.3 trillion in January-February 2024, it may have receded in March 2024 on a YoY basis amidst the Model Code of Conduct, the rating agency noted in the report.