India GDP: Economists Pare FY23 Growth Forecast As Headwinds Rise

The Indian economy may grow at a slower pace than earlier anticipated in the ongoing financial year as high inflation takes a bite out of personal consumption and fiscal room to support growth reduces.

Economists now see growth falling to 7-7.5% this year from 8.7% in 2021-22. While there are a number of uncertainties, growth should stay in the "7-handle", said Chief Economic Advisor V Anantha Nageswaran at a press conference following the release of GDP data for the fourth quarter on Tuesday.

GDP grew 4.1% in the January-March quarter, the early part of which was impacted by the third wave of Covid-19. While some of the impact seen on consumption, particularly services, will wane, economists worry that higher fuel and food prices will dampen broader consumption in the coming quarters. In addition, private investment sentiment may be dampened by the ongoing global and local uncertainties. Higher interest rates could also weaken aggregate demand, economists said.

Nomura: Cuts FY23 Forecast To 7.3% From 7.4% Earlier

In the near quarters, there is growth support from continued recovery of contact-intensive services, lagged effects of easy financial conditions and the government's capex focus, said Nomura.

However, the current recovery is unsustainable, owing to higher inflation, tighter monetary policy and global growth slowdown, economists Sonal Varma and Aurodeep Nandi wrote in a report.

"In cognizance of the positive surprise in the Q1 GDP growth, we raise 2022 GDP growth forecast to 7.2% YoY (from 6.8%), but trim our FY23 projection to 7.3% (from 7.4%) and expect FY24 at 5.8%."

Deutsche Bank: Cuts FY23 GDP Growth Forecast To 7.1%

Elevated oil prices and a higher inflationary impulse are likely to result in slower sequential improvement in domestic demand in the coming quarters, wrote the bank's Chief India Economist Kaushik Das.

"Our downward revision to FY23 real GDP growth is mainly on account of a cut in private consumption growth, which will likely spillover to FY24 as well, leading us to forecast a below-consensus 6.0% YoY real GDP growth for FY24, with risks biased to the downside."

HSBC Sees Below Consensus Growth Of 6.8%

For four reasons, growth could begin to slow in the second half of FY23, said HSBC's Chief India Economist Pranjul Bhandari.

1. Pent-up services demand may begin to run its course.

2. As electricity tariffs are raised over the next 12 months, higher urban cost of production and living could hurt growth.

3. If informal sector demand continues to weaken, its impact could be felt by formal sector producers down the line; after all, they produce for the entire economy.

4. Since much of the growth recovery has been on the back of higher exports, a weak global growth outlook could hurt.

Barclays: Cuts FY23 Forecast To 7% From 7.8% Earlier

Barclays' Chief India Economist Rahul Bajoria said GDP slowed from 3.3% quarter-on-quarter seasonally adjusted growth in the October-December quarter to 0.5% in January-March as supply shortages and Omicron-related temporary activity restrictions weighed on the recovery.

But risks to the growth outlook continue to intensify "as elevated input costs, global supply shortages, shrinking corporate profitability, and diminishing global growth prospects weigh on growth outlook”, Bajoria said.