GDP growth expected to halve to 6.5% in Q2 FY23: Icra

NEW DELHI: India’s economic growth is likely to slow to 6.5% in the second quarter of the current fiscal year (Q2FY23), largely due to movements in input costs for some more fuel-intensive sectors , as well as the impact of weak external demand on non-oil commodity exports, ratings agency Icra Ltd said on Monday.

For the April-June period, the economy grew 13.5% from a year ago, fueled by domestic demand.

“Economic activity in the second quarter of FY2023 benefited from strong demand for contact-intensive services, healthy Government of India (GoI) capital spending and stockpiling of goods ahead of the festive season. “said Aditi Nayar, Chief Economist, Icra.

Downside risks stemmed from trends in mixed crop production revealed by forward estimates of kharif production, adverse movements in input costs for some more fuel-intensive sectors, as well as the impact of declining external demand on exports of non-oil goods. “Overall, we expect GDP growth in the second quarter of fiscal 2023 to be 6.5%, slightly higher than the September 2022 Monetary Policy Committee (MPC) forecast of 6.3% for this quarter,” Nayar said.

Travel-related services have recorded a healthy recovery since the start of FY23. They have benefited from pent-up demand related to business travel and increased confidence in the use of leisure services amid the decline in the trajectory of covid-19 infections.

“As many as nine of the 16 high-frequency service sector indicators reported double-digit year-on-year expansion in the second quarter of FY23. In particular, the combined revenue expenditures (revex) of the 24 state governments for which data is available posted a considerable annual growth of 16.7% in the second quarter of FY23,” said Icra.

In addition, other services, including education, healthcare, recreation and other personal services, are expected to have seen sustained demand during this quarter. However, the Center’s noninterest income expense contracted 1.4% in the second quarter of FY23.

Icra forecast services sector GVA growth at 9.4% in the second quarter of FY23.

Investment-related indicators such as production of capital goods, infrastructure/construction goods, aggregate capital expenditure of 24 state governments and gross capital expenditure of central government showed good performance. performance in the second quarter of FY23.

“The aggregate capital expenditure of these states reached Rs. 1.1 trillion in Q2 FY23 from Rs. 0.6 trillion in the first quarter of FY23, benefiting from the release of a double tranche of monthly central fiscal decentralization to the states in August 2022. Despite this, and the ample fiscal space available, the states’ capital expenditure in the first half of FY23 stood at Rs. 1.7 trillion, half of the rupees. 3.4 trillion incurred by GoI,” Icra said.

Manufacturing volume growth, as shown by IIP data, in Q2 FY23 was modest at 1.4% from prior year levels, dragged down by weak external demand and subdued domestic demand for durable consumer goods in a context of high input costs and fuel inflation.

While listed companies’ earnings were supportive in the second quarter of FY23, interim volume growth limited their ability to transmit the pain of rising costs to product prices, resulting in margin compression to varying degrees. various according to the sectors during this quarter.

ICRA forecasts year-over-year manufacturing GVA growth to fall to 3% in the second quarter of FY23, from 4.8% and 5.6%, respectively, in the first quarter of FY23 and the second quarter of exercise 22.

Based on early agricultural production advance estimates, ICRA expects agricultural GVA growth of a modest 2.5% for the second quarter of FY23. Unexpected heavy rains in the States northwest and central India at the end of the monsoon season could have a negative effect on crop production compared to estimates.

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