India’s GDP growth for the second quarter of the current fiscal year will likely halve from the first quarter to 6.5%, but still beat RBI’s Monetary Policy Committee estimate, according to ICRA’s latest projections. The RBI MPC meeting held in September had projected the GDP in Q2FY23 at 6.3 per cent. The growth would be subdued largely due to the slump in external demand for non-oil merchandise products and crop outputs. Factoring in the base effect, the GDP growth is expected to halve in the fiscal second quarter from the domestic demand-fuelled 13.5 per cent in Q1FY23.
“Economic activity in Q2FY23 benefitted from robust demand for contact-intensive services, healthy capital spending by the Government of India (GoI) and pre-festive season stocking of goods,” said Aditi Nayar, chief economist, ICRA. Talking about the growth mitigating factors, she added, “The downside 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 flagging external demand on non-oil merchandise exports. On balance, we project theGDP growth in Q2FY23 at 6.5 per cent, somewhat higher than the Monetary Policy Committee’s September 20222 forecast of 6.3 per cent for that quarter.”
The slight jump in GDP growth is also backed by investment-related indicators such as the output of capital goods, infra\construction goods, gross capital expenditure, among others, which showed a healthy on-year performance in the second quarter. While the manufacturing volumes were modest in the second quarter of this fiscal year, the services sector kept the growth buoyant, albeit moderately. A major player in the service sector’s robust performance was travel-related services that have recorded a healthy recovery since the start of the FY2023.
The central bank had earlier projected a growth rate of 7.2 per cent which it cut down to 7 per cent in the last MPC meeting. The world bank, too, cut the forecast by 100 basis points, bringing down the growth estimate to 6.5 per cent. The next RBI MPC meeting, scheduled in December is keenly eyed as it will chart out the further course of the central bank’s efforts to tame inflation and may also make some changes to the last predicted growth rate of the country.