India’s Q1 GDP Set for One-Year High on Back of Increased Capex and Services Activity, Say Economists


In a promising sign for India’s economic trajectory, economists are projecting that the country’s GDP growth for the first quarter of the fiscal year 2023-2024 will likely reach a one-year high. This optimism is rooted in factors such as a significant uptick in the services sector, heightened capital expenditure by central and state governments, and robust consumption patterns. As the Narendra Modi-led government intensifies its focus on capital expenditure (capex), the economy is showing signs of a noteworthy revival.

The April to June period is expected to mark a pivotal moment for India’s economy, with growth rates predicted to soar, primarily driven by increased government expenditure, elevated consumer demand, and heightened services sector activities. A consensus amongst economists, as per a poll conducted by ET, places the median forecast for Q1 GDP growth at 7.8 percent, with a projected range of 7.5 to 8.5 percent. This uptick follows an economic growth rate of 6.1 percent in the March quarter of FY23 and a full-year growth rate of 7.2 percent in the preceding fiscal year.

Central and state governments’ substantial investments in capital expenditure have emerged as crucial drivers of economic resurgence. During the April to June 2023 period, capital expenditure rose to approximately Rs 2,78,500 crore, marking a substantial increase from the Rs 1,75,000 crore spent during the same period in the previous fiscal year. This heightened capex activity is indicative of the government’s dedication to infrastructural development and a push for economic recovery.

A notable contributor to this anticipated growth is the buoyant services sector, which has played a pivotal role in India’s economic resurgence. The services sector had already demonstrated its strength in the final quarter of the previous fiscal year, and this trend seems set to continue. “High-frequency indicators for air and rail travel confirm continued steady demand in the transport sector, although capacity constraints, along with a catchup to pre-Covid levels of activity, mean some moderation in momentum compared with the previous quarter,” remarked Rahul Bajoria, Head of EM Asia, ex-China, Economics at Barclays.

Reflecting this momentum, data from S&P Global PMI indicated that India’s services sector experienced its highest growth in 13 years during July. ICRA’s report suggested that the services sector’s gross value added (GVA) likely expanded by 9.7 percent in Q1FY24, a marked increase from the 6.9 percent growth in Q4FY23. Notably, Aditi Nayar, Chief Economist at ICRA, projected an even more substantial growth rate of 8.5 percent, attributing the upswing to heightened services demand and improved investment activity.

The government’s strategic emphasis on capital expenditure is evident through data that highlights a significant surge in this aspect. In the Q1 of FY24, the central government is estimated to have spent 27.8 percent of the budgeted amount, with state governments contributing 12.7 percent. Encouragingly, the Centre and 23 states (excluding Arunachal Pradesh, Assam, Goa, Manipur, and Meghalaya) registered annual growth rates of 59.1 percent and 76 percent, respectively, in capex spending.

States with impending elections, such as Andhra Pradesh, Telangana, and Madhya Pradesh, demonstrated capital expenditure growth rates of up to 41 percent, according to a report by SBI Research. This heightened investment in infrastructure and development not only promises economic recovery but also underscores the government’s commitment to fostering growth and improving the country’s overall economic landscape.

As India’s economy continues to pivot towards growth, with the services sector leading the charge and capital expenditure acting as a strong tailwind, the trajectory looks promising for the months ahead. The concerted efforts of both central and state governments to bolster economic activity through investment are expected to yield positive outcomes, potentially propelling the nation’s GDP to a remarkable one-year high.

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