ICRA, the rating agency, predicts a sequential moderation in India’s GDP growth to 7% in the July-September 2023 quarter, down from 7.8% in Q1 FY2024. Despite the moderation, the second-quarter expansion is expected to surpass the Monetary Policy Committee’s (MPC) projection of 6.5%.
Gross Value Added (GVA) Growth Estimates
The Gross Value Added (GVA) growth is anticipated to ease to 6.8% in Q2 FY2024, with the services sector and agriculture contributing to the deceleration. The normalizing base and erratic monsoon are cited as factors leading to the sequential moderation in GDP growth.
Factors Impacting Future Growth
ICRA points out potential factors impacting future GDP growth, including uneven rainfall, narrowing commodity price differentials, a potential slowdown in government capex nearing parliamentary elections, weak external demand, and the cumulative impact of monetary tightening.
Full-Year GDP Growth Estimate and Investment Activity
The full-year GDP growth estimate by ICRA is maintained at 6.0%, lower than the MPC’s projection of 6.5%. Robust investment activity is noted in Q2 FY2024, with improvements in seven of the 11 investment-related indicators compared to Q1 FY2024.
Industrial GVA Growth and Sectoral Performance
The industrial GVA growth is estimated to rise to 6.6% in Q2 FY2024, driven by manufacturing, electricity, and mining. Manufacturing is expected to witness an uptick, supported by higher volumes and ongoing tailwinds from commodity prices. Electricity generation saw double-digit expansion, benefiting from increased demand.
Services and Agriculture GVA Growth Expectations
Services GVA y-o-y growth is projected to moderate to 8.2% in Q2 FY2024, down from 10.3% in Q1 FY2024, attributed to a normalizing base. Agriculture, forestry, and fishing growth are estimated to dip sharply to 1.0% in Q2 FY2024 due to a decline in Kharif crop output.
Forward-Looking Concerns and Conclusion
ICRA expresses concerns about uneven rainfall, commodity prices, potential government capex slowdown, weak external demand, and the cumulative impact of monetary tightening affecting H2 FY2024 GDP growth. The rating agency maintains a cautious outlook, emphasizing the need for ongoing monitoring and assessment.
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