Crisil cuts FY23 growth by 30 bps to 7%; Implementation reduces GDP in the second quarter to half of the last fiscal year to 6.5%

Ratings agencies Crisil and Icra on Monday revised down their India growth forecasts for the current fiscal and the second quarter, mainly due to the knock-on effects of a global slowdown and mixed harvests.

Crisil cut India’s GDP growth forecast by 30 basis points to 7 percent while Icra pegged GDP growth at 6.5 percent in the second quarter of FY2022-23.

“We have revised down our forecast for real GDP growth to 7 per cent for fiscal 2023 from 7.3 per cent, primarily due to the slowdown in global economic growth which has begun to affect our exports and industrial activity. This will test resistance to domestic demand,” Crisil Chief Economist Dharmakirti Joshi said in a note.

Aditi Nayar, his counterpart at Icra, in his report said growth of 6.5 percent in the second quarter of the current fiscal, almost half of last year’s quarter when the economy had contracted by 12.7 percent, but which is still slightly more than monetary. the policy committee’s September forecast of 6.3 percent and 6.5 percent in gross value added (GVA) is less than half of the 13.5 percent a year ago.

She attributed the lower figures to mixed crop production trends reflected by advance estimates for kharif production, unfavorable movements in input costs for certain more fuel-intensive sectors, as well as the impact of weaker external demand for non-oil exports, which reduced the benefits of stronger demand for touch-intensive services. , healthy government spending and stocking up for the holidays.

However, she also said pre-Covid economic growth was expected to double to around 8 percent in the second quarter compared to the 3.8 percent seen in the previous quarter. The agency estimates that economic growth in the second quarter is driven by the service sector (9.4 percent), with low growth forecast for the sector (2 percent), and agriculture, forestry and fishing (2.5 percent).

Joshi said he is edging the growth forecast by just 30 basis points as domestic demand continues to support, helped by a boom in contact-based services, government capital spending, relatively sound financial conditions and a generally normal monsoon season for the fourth consecutive year.

But Joshi warned that the ripple effect from the global recession will be more felt in the next fiscal, putting pressure on domestic demand as interest rate hikes are passed on more to consumers and the boom in contact-based services fades.

“Consequently, we expect growth to slow to 6 percent in fiscal 2024, down from 6.5 percent previously estimated, with a higher risk of downside to the revised forecast,” Joshi said.

Despite the slowdown in near-term economic growth, the country is expected to continue to outperform over the medium term, he said, expecting growth to average 6.6 percent between fiscal 2024 and 2026, compared with 3, 1 percent global economic growth. forecast by the International Monetary Fund.

He also sees the country outpacing its emerging market peers such as China (4.5 percent growth projected for 2023-25), Indonesia (5.2 percent), Turkey (3 percent) and Brazil (1.6 percent).

Joshi foresees stronger domestic demand (private consumption is up to 57 per cent of GDP) driving growth momentum ahead of peers over the medium term on the back of an upbeat investment outlook given the government’s push for capital spending, progress in production-based incentives, healthier corporate finances and well funded banks with low NPAs.

The country is also likely to benefit from the China Plus-One strategy as global supply chains will be reconfigured by shifting the focus from efficiency to resilience and ally strength.

Noting that declining exports have affected domestic momentum (for the first time in more than two years, exports fell over 25 percent 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 interest rate hikes in the US and EU trickle down to consumers, Joshi warned.

Although Nayar attributed the large likely slowdown in growth in the second quarter to strong base effects in the same period a year ago, she estimates that second-quarter economic growth is also losing steam, with the best numbers from the services sector above 9.4 percent and manufacturing shooting came up with lower figures of about 2 percent and agriculture, forestry and fishing failed with higher margins that wander in with a likely 2.5 percent growth.

Travel-related services have made a healthy recovery since the start of FY23, benefiting from pent-up demand for corporate travel and increased confidence to take advantage of leisure services amid a slowdown in pandemic infections, she said.

As many as nine of the 16 high-frequency indicators of the service sector saw double-digit expansion in the second quarter.

While the combined revenue expenditure of the 24 states increased by 16.7 per cent in the second quarter, the Centre’s non-interest income expenditure declined by 1.4 per cent.

Manufacturing growth, or IIP, was a modest 1.4 percent in the second quarter, dragged down by weak external demand and subdued domestic demand for consumer durables amid rising input costs and fuel inflation, she concluded.

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