Rating agency Icra expects India’s Q1 GDP growth to be 12-13%

Rating agency Icra on Tuesday forecast 12-13% real GDP growth for the first quarter of FY23, citing improvements in its business activity monitor readings and favorable foundation effects.

However, for the full year (FY23), the agency forecasts 7.2% growth, thanks to the strong impact of the Ukraine war, high inflationary pressures and rising interest rates. According to the second advance estimate of the National Statistics Office, the economy is expected to grow by 8.9% in FY22.

Aditi Nair, chief economist at ICRA, said the agency’s business activity monitor stood at 115.7 in April, the second highest in 13 months, a 16.1% jump from a year earlier. The rise was supported by a supportive foundation (the second covid wave hit the nation in the first quarter of last fiscal year). The monitor has high-frequency gauges related to 14 industrial and service sectors.

However, if the base effect declines after the first quarter, this high GDP growth rate may not be sustainable, he said. Elevated input costs could lead to an increase in total value added in single digits this fiscal year.

Nair predicts that retail inflation will average 6.3-6.5% this fiscal year, above the central bank’s medium-term target of 2-6% above the upper band. To control price pressures, the Reserve Bank of India may raise the repo rate by 40 basis points in June and another 35 basis points in August, Nair said. He expected the central bank to raise the repo rate from 4.4% now to 5.5% by mid-2023.

Nair stressed that the biggest reverse risk of inflation and growth stems from the war in Ukraine. If the war does not subside soon, the effects will be far greater than expected, he said.