Improved Margins To Boost India's GDP Expansion To 8.5% In Q1FY2024: Report

As year-on-year (YoY) growth in economic activity eased in June 2023, improved margins are likely to boost India's gross domestic product (GDP) expansion to 8.5 per cent in quarter one (Q1) of the financial year (FY) 2024, said rating agency Icra in a report.

The momentum of economic activity moderated in June 2023, as reflected in a dip in the YoY growth of Icra business activity monitor- an index of high-frequency indicators- to 6.7 per cent from 8.9 per cent in May 2023. 

However, the month-on-month (MoM) decline was relatively shallower in June 2023 versus 2019, while the growth of the index over pre-Covid levels sustained above 20 per cent for the third consecutive month. 

In quarterly terms, the YoY growth in the ICRA business activity monitor decelerated to a five-quarter low of 7.1 per cent in Q1 FY2024 from 10.3 per cent in Q4 FY2023, partly reflecting the base normalisation, weakness in external demand and impact of unseasonal rains in the first half of the quarter. 

Despite this, Icra expects the GDP growth to rise to 8.5 per cent in Q1 FY2024 from 6.1 per cent in the prior quarter, benefitting from a likely improvement in corporate margins with a sharper YoY deflation in commodity prices.

The report also mentioned that the sustained weakness in external demand continued to act as a drag on economic activity, with the contraction in India’s non-oil exports widening to 13.5 per cent YoY (the steepest decline in eight months) in June 2023 from 4.8 per cent in May 2023.

"This also manifested in a slowdown in cargo traffic at major ports (to a 16-month low of 0.4% in June 2023) and is likely to have affected rail freight traffic (-1.9 per cent in June 2023; first contraction in 34 months) reflecting in a YoY decline in container traffic at both ends," it added.

Additionally, the performance of auto production deteriorated in June 2023, with the output of 2Ws partly impacted by the large decline in such exports.