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Growth to slow down to 4-4.5% in H2 of FY23 due to headwinds: Report

The report notes the nascent industrial production growth. (file)


A report said that a number of adverse conditions, both domestic and external, will reduce the GDP (Gross Domestic Product) growth rate to less than 4-4.5 per cent in the second half of FY2023. ,

In the first half of the current fiscal year, the economy grew at 9.7 per cent — 6.3 per cent in the September quarter and 13.5 per cent in the past three months — and forecasts for the full year have varied from a low of 6.6 per cent. percent to 7 percent.

According to India Ratings, the economic recovery in H1FY23 was resilient and encouraging, but challenges such as high inflation and weak demand (both domestic and external) are expected to drag down economic growth to 4-4.5 per cent in H2FY23 from 9.7 per cent. per cent in the first half of the financial year.

The agency, however, did not give a forecast for the full year. Data for the September quarter suggest that despite geopolitical uncertainty and fears of a global recession, the domestic economy has shown resilience. In fact, the second quarter growth print remains the same after Saudi Arabia’s 8.6 percent among major economies, the agency says.

Despite this, the economy still has a lot to cover that was lost due to the pandemic as the CAGR during Q1FY20-Q2FY23 works out to 2.5 per cent, which is much lower than the CAGR of 5.3 per cent during Q2FY17-Q2FY20 Is. ,

Even at the individual level, major employment-intensive sectors such as manufacturing and trade, hotels, transport and communications closed at a CAGR of only 2 per cent and 0.7 per cent, respectively, during this period, while the CAGRs for Q2FY17-Q2FY20 were 3.4 and 8.1 . percent, respectively.

The report also points to muted wage growth at the lower end of the income pyramid, resulting in subdued consumption demand. Broad-based improvement in consumption demand is essential for sustainable development.

The report said the way forward will not be without hiccups as the concurrent global monetary tightening has increased financial fragility and downside risks to global growth which will impact the Indian economy as well.

The report also noted nascent industrial production growth, which slowed to an eight-quarter low of 1.5 per cent in Q2 FY2023 from 9.5 per cent.

A closer look at factory output data shows that eight sectors representing roughly 25 per cent of the manufacturing sector contracted in Q2, keeping manufacturing sector growth at 1.4 per cent in Q2. The sectors that have contracted are apparel, textiles, leather and related products, pharmaceuticals, medicinal and related products, and electrical equipment.

The agency believes that due to the slowdown in growth in major trading partners, several industrial sectors will face headwinds on the export front.

Noting that the services sector still showed mixed signals, it said growth in ports cargo and railway freight fell to a seven-month low of 3.7 per cent and a 27-month low of 1.4 per cent, respectively. Air cargo traffic declined by 15.1 per cent in the same period, the biggest contraction since September 2020. In this, both air and rail passenger traffic is behind the level before the pandemic.

However, the financial sector is witnessing a strong buoyancy with non-food credit growing at a 34-month high of 17.1 per cent, while non-food credit growth has been fairly broad-based.

After several successful quarters, merchandise exports plunged a whopping 16.7 percent to USD29.8 billion in October–the first contraction in 19 months. Merchandise imports also declined, falling to just 5.7 percent in October, and all available indicators suggest that exports will continue to face more headwinds.

Another major problem is sticky inflation, both at the consumer and wholesale levels. Retail and wholesale inflation came down to 6.8 per cent and 8.4 per cent respectively in October. And the agency expects retail inflation to soften to about 6.6 percent in November and further decline thereafter unless the Ukraine war worsens.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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