Crisil cuts India’s FY23 growth projection to 7%

Mumbai:

Ratings agencies Crisil and Icra on Monday revised down their growth projections for India for the current fiscal year and the second quarter, mainly due to the ripple effect of slowing global growth and output. of mixed cultures.

Crisil cut India’s growth forecast by 30 basis points to 7% while Icra pegged economic expansion at 6.5% for the second quarter of the 2022-23 financial year.

“We have revised down our forecast for real gross domestic product growth to 7% for fiscal year 2023, from 7.3%, mainly due to the slowdown in global growth which has started to impact our exports. and our industrial activity. This will test the resilience of domestic demand,” Crisil chief economist Dharmakirti Joshi said in a note.

Aditi Nayar, his Icra counterpart, in his report, drew 6.5% growth in the second quarter of the current fiscal year, almost half of the quarter of the previous year when the economy had reached 12 .7%, but which is still a little higher than the monetary policy committee’s September forecast of 6.3% and at 6.5% of gross value added (GVA), less than half of 13, 5% a year ago.

Dharmakirti Joshi attributed the lower figures to trends in mixed crop production revealed by advance estimates of kharif production, unfavorable movements in input costs for some more fuel-intensive sectors, as well as the impact of the decline in external demand on exports of non-oil goods. , which trimmed gains from robust demand for contact-intensive services, healthy government capital spending and stockpiling of goods ahead of the holiday season.

She also said, however, that GDP (gross domestic product) growth from pre-Covid levels is expected to double to around 8% in the second quarter, from 3.8% in the previous quarter. The agency estimates that sectoral growth in the second quarter will be driven by the services sector (9.4%), with a moderate trend expected for industry (2%) and agriculture, forestry and fishing (2 .5%).

Dharmakirti Joshi said he was cutting his growth forecast by just 30 basis points as domestic demand still remained supportive, helped by a catch-up in contact services, government investment, relatively accommodative financial conditions and generally normal monsoons. for the fourth consecutive time. .

But Dharmakirti Joshi warned that the ripple effect of the global slowdown will be felt more in the next fiscal year, putting domestic demand under pressure as interest rate hikes are passed on more to consumers and the catch-up contact services will fade.

“Therefore, we expect GDP growth to slow to 6% in fiscal 2024 from the previously estimated 6.5%, with more downside risks to the revised forecast,” Dharmakirti Joshi said.

Despite lower growth in the short term, the country is expected to remain higher growth in the medium term, he said, and expects average GDP growth of 6.6% between fiscal years 2024 and 2026, against a global growth of 3.1%. provided by the International Monetary Fund.

It also sees the country outpacing emerging market peers such as China (estimated 4.5% growth for 2023-25), Indonesia (5.2%), Turkey (3%) and Brazil (1 .6%).

Dharmakirti Joshi sees stronger domestic demand (private consumption accounts for up to 57% of GDP) driving growth against peers over the medium term on optimistic investment outlook given surge in capital spending government, progress in the production-linked incentive program, healthier corporate balance sheets, and well-capitalized banks with low NPAs.

The country is also likely to benefit from the China-plus-one policy as global supply chains are reconfigured with a shift in emphasis from efficiency to resilience and shoring up friends.

Noting that the decline in exports has affected domestic industrial momentum (for the first time in more than two years, exports fell by more than 25% in October), the IIP has been on a downward trend since July 2022 for export-related sectors. The hit to industrial activity could intensify in fiscal 2024 as aggressive rate hikes in the United States and the EU (European Union) inch closer to consumers, Dharmakirti Joshi warned.

Although Aditi Nayar attributed the likely sharp deceleration in growth in the second quarter to the high base effect of the prior year period, she believes that second quarter sector growth is also losing steam, the best figures from the service sector at over 9.4%, and industry booming. moderate numbers with around 2 percent and agriculture, forestry and fishing failing by a wider margin with a likely growth of 2.5 percent.

Travel-related services have recorded a healthy recovery since the start of FY23, benefiting from pent-up demand related to business travel and growing confidence in the use of leisure services amid the decline in the trajectory of pandemic infections, she said.

No less than nine of the 16 high-frequency service sector indicators saw double-digit growth in the second quarter.

While the combined revenue expenditures of the 24 states increased 16.7% in the second quarter, the Center’s noninterest revenue expenditures contracted 1.4%.

Manufacturing or IIP growth was a modest 1.4% in the second quarter, driven by weak external demand and subdued domestic demand for durable consumer goods amid high input costs and fuel inflation, she concluded.

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