In a report, the rating agency explained that Q1 gross domestic product (GDP) growth faced downward pressure due to unseasonal heavy rains, weak external demand and the lagged effects of monetary tightening.
However, growth in the quarter was due to a continued recovery in service demand, increased investment activity and reduced commodity prices, enhancing sectoral margins.
India’s economic growth will accelerate to 8.5 per cent in Q1 FY24 from 6.1 per cent in the preceding fiscal, according to ICRA Ratings, which recently said the growth is led by a favourable base effect and a recovery in the services sector.
The rating agency maintains a conservative 6 per cent real GDP growth forecast for the entire fiscal year.
There was significant growth in capital expenditure by state governments and the central government in the quarter. External commercial borrowings for capital expenditure in Q1 exceeded the full-year FY23 levels as well.
ICRA projects a double-digit expansion in gross fixed capital formation (GFCF) for Q1 FY24 based on strong year-on-year (YoY) growth in various investment indicators.
ICRA chief economist Aditi Nayar, however, cautioned that the latter half of this fiscal may see challenges that could dampen growth.
Factors such as erratic rainfall, reduced differentials in commodity prices compared to the previous year and a potential slowdown in government capital expenditure as elections approach are identified as potential limiting factors.
Nayar maintains a conservative 6 per cent real GDP growth forecast for FY24, lower than the Reserve Bank of India’s 6.5 per cent projection.
Fibre2Fashion News Desk (DS)
