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Crisil on Monday revised down its India growth forecast for the current fiscal to 7% from 7.3% estimated earlier, citing the slowdown in global growth and its impact on India’s exports and industrial activity. The rating agency added that the growth of the country’s gross domestic product (GDP) will slow considerably to 6% in FY24 as against 6.5% forecast earlier with the risk titled downwards, as the global growth decelerates faster.
The revised forecast for the current fiscal includes Q2GDP growth expectation of 6.5% against 13.5% in Q1, and just 4.5% GDP expansion in the second half.
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Stating that domestic demand would remain supportive to growth in FY23 helped by a catch-up in contact-based services and government capex, relatively accommodative financial conditions and overall normal monsoon, Crisil said the impact (of global slowdown) is expected to be more next fiscal.
“Additionally, (during the next fiscal), domestic demand could come under pressure as interest rate hikes get transmitted more to consumers and the catch-up in contact-based services fades,” it stated.
The agency observed that long-term growth movements suggest that India’s growth cycles have been remarkably synchronised with those of the advanced economies since the 2000s. “Put another way, there is no escaping the short-term demand fluctuations around the trend and this time will be no different. The deceleration of major developed economies underway will create downside risks for India’s growth outlook.”
S&P Global had earlier said that global growth is set to decline from 3.1% this year to 2.4% in 2023, led by slower growth in advanced economies, especially eurozone and the US.
“Falling exports have affected domestic industrial momentum. The index of industrial production has been a falling trend since July 2022 for export-linked sectors. The hit to industrial activity could intensify in fiscal 2024, as aggressive rate hikes in the US and EU reach closer to consumers, ” S&P had said.
According to Crisil, the global slowdown’s hit to Indian exports could weaken income prospects of the Indian manufacturing industry, particularly the labour-intensive ones such as textiles and gems & jewellery. But, it said, the overall impact could be less pronounced this time because China-plus-one policy will gradually turn more export demand towards other economies, including India.
The agency, however, noted signs of slowdown emerging for some demand segments. “Core imports have been on a slowing trend in September-October 2022. IIP has also been declining for consumer durables and non-durables.”
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According to it, demand recovery remains uneven, with consumption of lower value goods continuing to trail higher-ticket items. Crisil added that rural income prospects remained dependent on the vagaries of the weather. “While lowering of demand for MGNREGA jobs is an encouraging sign for rural economy from a job perspective, depressed wages are a matter of concern for rural demand,” it said.
Separately, Icra too revised Q2 growth forecast to 6.5%compared to 12.5% clocked in the year ago quarter, and attributed the deceleration to sectoral growth rates losing steam, with industry seen to grow just 2% while services are expected to post robust 9.4% expansion.
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