India's GDP growth forecast continues to see cuts

• As effects of post-Covid reopening fades, India’s growth momentum could slow down next year, says a Goldman Sachs report.
  
  
• CRISIL cut its Indian GDP growth forecast for FY23 to 7% from 7.3% earlier.
  
  
• In November, Moody’s cut its India GDP growth forecast for 2022 to 7% from its earlier estimates of 7.7%.
  
  
• RBI too revised its GDP growth rate estimates for FY23 to 7% from 7.2% earlier.
  

India’s GDP growth will slow down in the next calendar year of 2023, says a note released by Goldman Sachs. It has slashed GDP growth expectations to 5.9% next year, as compared to the 6.9% growth of 2022.

India’s growth momentum will be affected by the fading effects of post-Covid reopening, coupled with higher borrowing costs, as per Goldman Sachs.

“Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand. In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up,” said Goldman Sachs per a Bloomberg report.

Goldman Sachs expects the global economy to grow at 1.8%, as US resilience contrasts with a European recession, and a bumpy reopening in China. “Global growth slowed through 2022 on a diminishing reopening boost, fiscal and monetary tightening, China’s Covid restrictions and property slump, and the Russia-Ukraine war,” said a redacted version of Goldman Sachs report on November 16.

In the second week of November, Moody’s too cut its India GDP growth forecast for 2022 to 7% from its earlier estimates of 7.7%. The rating agency has cited rising inflation coupled with high interest rates and a slowing global economy as the reasons behind the same.

However, Moody’s pegged India’s GDP growth rate at 4.8% for 2023 – much lower than that of Goldman Sachs’ report.

On Monday, CRISIL cut its Indian GDP growth forecast for FY23 to 7% from 7.3% earlier. This agency too expects FY24 growth to slow down further to 6%.

RBI too revises estimates

CRISIL’s estimates are in line with RBI’s estimates which too revised its GDP growth estimates in September for the financial year 2022-23 from 7.2% to 7%.

For the first quarter of FY23, India’s GDP grew at 13.5%. In spite of its double digit growth, it had missed many estimates, forcing agencies like SBI and Citibank to recalibrate their estimates for the financial year and the RBI was the latest to do so.

“While the real GDP growth in the first quarter of this year turned out to be lower than expectations, nonetheless it was 13.5% and perhaps the highest among the major global economies," RBI governor Shaktikanta Das said on September 30.

Like most central banks around the world, India too has hiked base interest rates four times this financial year on account of rising inflation. The base interest rate rose cumulatively by 1.9%, and now stands at 5.9%.

For the month of October, exports shrunk by 16.6%, while imports rose – expanding the country’s current account deficit. The retail inflation cooled to a three-month low of 6.7%, but was however above the RBI’s tolerance limit of 6%. Retail inflation had been above the RBI’s comfort zone for the last ten months.

Q2 growth rate estimated at 6.5%: ICRA

Apart from macroeconomic effects, India’s growth story is also affected by a myriad of factors including erratic monsoons and more. As per an ICRA report, India’s pace of economic growth is expected to halve in the second quarter, as compared to the first. As per the rating agency’s note, Q2 GDP growth is expected to be at around 6.5% – half of Q1 GDP growth.

“Economic activity in Q2 FY2023 benefitted from robust demand for contact-intensive services, healthy capital spending by the Government of India (GoI) and pre-festive season stocking of goods. The downsides arose from the mixed crop output trends revealed by the advance estimates of kharif production, adverse input cost movements for certain sectors with a higher fuel intensity, as well as the impact of the flagging external demand on non-oil merchandise exports,” said the ICRA report.

The contribution of agriculture to the nation’s growth is estimated at a modest rate of around 2.5% by ICRA for the quarter. “Untimely heavy rainfall in the North-west and Central India is likely to have added to the moisture levels of the standing crop, which poses some downside risks to the kharif output relative to first advance estimates,” the ICRA report said.

However, ICRA’s estimates are slightly higher than that of the Reserve Bank of India’s estimates for the second quarter – at 6.3% in Q2; tapering further to 4.6% each in Q3 and Q4.