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

Credit rating agency India Ratings has slashed India’s fiscal 2023 gross domestic product  forecast to 6.9% from 7%. The agency predicts GDP growth of 7.2% in the July-September FY23 quarter, 4% in October-December, and 4.1% in February-March.

“Despite private final consumption expenditure and gross fixed capital formation growth coming in better than our expectations in Q1, the agency expects the slowdown in the growth of government final consumption expenditure and worsening of net exports to weigh on the FY23 GDP growth,” according to a press release by India Ratings.

“Recovering the lost output due to COVID-19 will be a long haul. Our estimate shows that even if GDP grows at 7.6% 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 at India Ratings.

India Ratings noted that India’s domestic economic activity has remained comparatively more resilient than that of different countries. The growth momentum is anticipated to continue by 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. Household sector, which accounts for 44-45% 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% in urban areas and negative 1.6% in rural areas,” the agency added.

India’s Q1FY23 GDP has stood at 13.5% even with the low base of the equivalent period of 2021-22, when economic activity was deeply affected by the Delta wave of the COVID-19 pandemic. Moreover, the country’s GDP dropped by 9.6% in Q1FY23 compared with Q4FY22.