India Ratings cuts India's FY23 GDP growth forecast to 6.9% from 7%

India Ratings became the latest agency to cut its FY23 gross domestic product forecast. On Thursday, the ratings agency cut the forecast to 6.9 per cent from 7 per cent, joining other institutions who have cut their projections to below 7 per cent since the release of the April-June quarter GDP data.

“Despite private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF) growth coming in better than our expectations in Q1, the agency expects the slowdown in the growth of government final consumption expenditure (GFCE) and worsening of net exports to weigh on the FY23 GDP growth,” India Ratings said in a statement.

On Thursday, global rating agency Fitch also lowered India's economic growth forecast for FY23 to 7 per cent from its June 2022 estimate of 7.8 per cent. It now expects the GDP to slow further to 6.7 per cent in FY24 as compared to its earlier forecast of 7.4 per cent.

India Ratings projects GDP growth of 7.2 per cent in July-September FY23 quarter, 4 per cent in October-December and 4.1 per cent in February-March.

“Recovering the lost output due to COVID-19 will be a long haul. Our estimate shows that even if GDP grows at 7.6 per cent every year after FY23, then also India would be able to catch up with pre-pandemic trend growth only by FY35”, said Sunil Kumar Sinha, Principal Economist.

The agency did say that India’s biggest strength continues to be domestic economic activity, which has shown more resilience compared to the rest of the world. It said that it expects the growth momentum to sustain, averaging around mid-single digit in the remaining quarters, mainly buoyed by the upcoming festival season.

“However, ‘K-shaped’ recovery is neither allowing the consumption demand to become broad based nor helping the wage growth especially of the population that are part of the lower half of the income pyramid,” the agency said.

“Household sector, which accounts for 44-45 per cent of the gross value added, has witnessed nearly flat or negative growth in their real wages (adjusted for inflation) since FY19. Wage growth in June 2022 in real terms stood at about negative 3.7 per cent in urban areas and negative 1.6 per cent in rural areas,” it said.

India’s Q1FY23 GDP came in at 13.5 per cent, despite the low base of the equivalent period of 2021-22, when economic activity was severely impacted by the Delta wave of the pandemic. Sequentially, GDP contracted 9.6 percent in Q1FY23 compared with Q4FY22. The RBI had projected Q1FY23 GDP growth at 16.2 pe rcent.

After the official data, a number of banks and financial institutions slashed their economic growth estimates for the current financial year. These included State Bank of India, Goldman Sachs, Citigroup and ratings agency Moody’s.