SBI Capital Markets (SBICaps) said in research on Friday that although the Indian economy expanded substantially in the first quarter of the current fiscal year, unpredictable monsoons, sluggish rural spending, and a slowdown in global growth could pose significant obstacles moving forward.
According to the report on the nation’s Q1FY24 GDP update, a major source of variability is the monsoon, which is currently 10% deficient, with the country experiencing the driest August ’23 in over a century.
SBI Caps stated in the research that unreliable monsoons might result in a slight increase in agriculture GVA, a high likelihood of El Nino, and an incorrect or geographical distribution of rainfall that could have an impact on crop production, pulling the sector down.
“Further, private consumption expenditure’s share has marginally dipped. The risk here stems from rural consumption,” it stated. “As lower crop production feeds into lower rural incomes, this could slow down consumption – some FMCG majors have already raised such concerns.”
According to government figures released on Thursday, the Indian economy expanded 7.8% in the April-June quarter, driven by stronger government and private capital spending as well as strong services growth.
According to estimates from the Ministry of Statistics and Programme Implementation (MoSPI), real GDP at constant (2011–12) prices for the June quarter will total 40.37 trillion, up 7.8% from 37.44 trillion a year earlier. The government anticipates that normal GDP, or GDP at current prices, will reach 70.67 trillion, marking an 8% increase from 65.42 trillion in the same quarter last year.
The SBI Caps research emphasised that manufacturing rose by just 4.7% yearly during Q1FY24 due to selective expansion in some sub-sectors.
The strong GFCF growth of 8%, which translated into a staggering 35% of GDP in Q1, together with growth in a few infrastructure-input industries, the study claims, “indicates that the government push for infrastructure building through capex is acting as a driving force for the economy.”
“The flipside is that this capex is not crowding in non-government investment, as indicated by tepid bank loan growth to the infrastructure segment, and languid FDI inflows,” it continued.
However, the analysis cautioned that increasing social spending during the ensuing quarters, partly intended to alleviate rural distress, could raise revenue expenditure.
“This could stifle the very breath of GDP growth in the past few quarters – government capex. Complicating matters further, the Union is also faced with a less than exciting tax collection in 4MFY24, which curtails spending ability,” it said.
