Shifting gears of growth in sync

India's economic growth has soared beyond expectations after the Covid-19 pandemic. The upside surprise to India's growth continues. At 7.6% for fiscal 2024, gross domestic product (GDP) growth estimates from the National Statistical Office (NSO) beat expectations of analysts and policy makers.

Provisional estimates to be released in May will provide a more reliable estimate with a longer shelf life. The Reserve Bank of India (RBI) Governor hinted that growth in fiscal 2024 could touch 8%.

And this is happening in an environment of uneven global growth which offers limited stimulus to exports.

Interestingly, United States (US) growth, too, has beaten street estimates. S&P Global recently revised US growth outlook for 2024 to 2.4% from 1.5% projected in November 2023. This could help India's goods and services exports to the US as it is our largest trading partner.

Although real GDP is still below where it would have been without the pandemic, domestic strengths and policy focus have pulled the economy closer to the 7% growthpath. For the coming fiscal, we expect growth to moderate to 6.8% as high interest rates and lower fiscal impulse from reduction in fiscal deficit/GDP will temper demand.

The big monitorable for fiscal 2025 and beyond will be the momentum in private corporate investment as the government has started scaling down its budget-funded'fast and furious' investments in the infrastructure sector.

For fiscal 2023, public and household investments emerged as the faster growing components of investment. Private corporate investment did not show any definitivesign of revival till the last fiscal as its share in total investments was stagnant, reveals the recently released NSO data.

Private investment momentum picked up a bit in the current fiscal and is expected to become broad-based in the next few quarters. For more on this, please refer to ourrecent report on the Indian economy, titled 'Growth Marathon: Emerging sectors, investments, efficiency gains priming India's medium-term pace'.

Another focus point will be private consumption growth which is estimated to have grown at an anemic 3% for fiscal 2024. There has been a break in synchronicity between private consumption and growth in the current fiscal.

With a share of 57% in GDP, private consumption is the bulwark of the Indian economy. If rains are normal and inflation (particularly food inflation) edges down as predicted, private consumption is likely to strengthen over the next few quarters. 

In the current economic setting, where growth is strong and inflation is above the RBI's target, the upcoming monetary policy will keep rates and stance unchanged.