ICRA cut its forecast for Indian GDP year-on-year (YoY) growth (at constant 2011-12 prices) for FY 2023 to 7.2% from 8.0%.

The rating agency predicts GDP growth of 8.5% for the financial year 2022, slightly lower than the second advance estimate of 8.9% from the Office for National Statistics (ONS).

According to Aditi Nayar, Chief Economist, ICRA Ltd: “Following high commodity prices and new supply chain issues resulting from the Russian-Ukrainian conflict, as well as new shutdowns in parts of China, we have cut our forecast for India’s real GDP growth in fiscal year 2023 to 7.2% from 8.0%.

“Rising prices for fuels and items such as edible oils are likely to squeeze disposable incomes in middle to low income segments, limiting demand recovery in fiscal year 2023. However, the extension Premonitory free food grains under Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) until September 2022 may continue to provide some respite to food budgets for vulnerable households.

“In the middle to upper income segments, the normalization of behaviors after the third wave is expected to lead to a consumption pivot towards contact-intensive services that have been avoided during the pandemic, limiting the growth in demand for goods at the during fiscal year 2023,” Nayar mentioned.

Even though exports of some items from India will rise to meet global demand amid the supply crunch, ICRA expects a gradual increase in capacity utilization to 74-75 % in Q3 FY23, compared to 71-72% in Q4 FY22, which could lead to a potential slight delay. in the expected generalization of capacity expansion by the private sector.

In CIFAR’s view, utilization would need to exceed 75% for large-scale capacity expansion to be undertaken by the private sector. Currently, capacity expansion is underway in some sectors such as cement, steel, as well as sectors covered by PLI schemes. The most recent data released by the RBI pegs capacity utilization at 68.3% for the second quarter of FY2022.

A speedy launch of the Government of India’s (GoI) budgeted investment program remains crucial to boost investment activity in the first half of FY2023. However, a concern is that execution risk is shifting to states , a considerable part of the increase in budgeted investment expenditure of the Government of India stemming from the expansion of the size of the interest-free investment loan to state governments to Rs. 1.0 trillion in FY2023 from Rs. 0, 15 billion in FY2022.

Either way, prolonged geopolitical tensions and high commodity prices pose downside risks to the growth outlook, with margin compression expected to compress gross value added (GVA) growth over the period. of the conflict. “Furthermore, the K-shaped recovery looks likely to continue, with the formal sector gaining market share in fiscal 2023,” Nayar added..

Healthy reservoir levels provide insurance against potentially below normal rainfall in 2022. However, as economic activity normalizes, there could be a change in the availability of agricultural labor in different regions, affecting acreage in some states, which has been the main driver of agriculture. production in fiscal years 2021 and 2022. In addition, insufficient availability of fertilizer is a problem.

Systemic inventories are significantly lower than historical levels in all fertilizer segments, mainly due to lower imports amid limited availability in the international market and high prices. So even with a normal monsoon and healthy reservoir levels, area and therefore production may not increase significantly in FY 2023, limiting agricultural GVA growth below 3, 0%, added the rating agency.

ICRA noted that economic activity rebounded after the rapid reduction of the third wave of COVID-19 in February 2022 and the lifting of state restrictions. As expected, the third wave had a much smaller impact on trust levels compared to the first two waves. While early data for March 2022 is mixed, the Russian-Ukrainian conflict and associated commodity price spike has heightened uncertainty, and expected margin compression is likely to compress GVA growth.

CIFAR expects real GDP year-on-year growth to moderate to 3.0-4.0% in the fourth quarter of fiscal 2022, from 5.4% in the third quarter of fiscal 2022 Year-on-year real GDP expansion is therefore projected at 8.5% in FY2022, a slight increase of 1.3% from FY2020 levels.

Posted: Tuesday, March 29, 2022, 1:36 PM IST