Rating agency Icra expects India’s Q1 GDP growth to hit 12-13%

Rating agency Icra expects India’s Q1 GDP growth to hit 12-13%

17 May    Finance News

Rating agency Icra on Tuesday projected real GDP growth of 12-13% in the first quarter of FY23, citing an improvement in its business activity monitor reading and favourable base effect.

However, for the full year (FY23), the agency has forecast 7.2% growth, thanks to the ripple effect of the Ukraine war, elevated inflationary pressure and the rising interest rate scenario. According to the second advance estimate of the National Statistical Office, the economy is expected to have grown 8.9% in FY22.

Icra chief economist Aditi Nayar said the agency’s business activity monitor stood at 115.7 in April, the second highest in 13 months, having recorded a jump of 16.1% from a year before. The rise was aided by a conducive base (the second Covid wave had struck the nation in the first quarter of the last fiscal). The monitor includes high-frequency gauges relating to 14 industrial and service sectors.

However, once the base effect wanes after the first quarter, this high GDP growth rate may not sustain, she said. Elevated input costs may drag down the growth in gross value added to single digit this fiscal.

Nayar predicted retail inflation to average 6.3-6.5% this fiscal, above the upper band of the central bank’s medium term target of 2-6%. To contain price pressure, the Reserve Bank of India may raise the repo rate by 40 basis points in June and another 35 basis points in August before it may wish to take a pause, Nayar said. She expected the central bank to raise the repo rate to 5.5% by mid-2023 from 4.4% now.

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Nayar stressed that the biggest upside risks to inflation and growth emanate from the war in Ukraine. If the war does not subside soon, the impact will be much wider than anticipated, she said.

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