In its latest report, ICRA said, "While the YoY growth is expected to slow from Q1 FY2023 to Q2 FY2023 and further to H2 FY2023, this would largely be optical in nature; growth is expected to pick up compared to pre-Covid levels of FY2020."
ICRA's note highlighted that the YoY performance of 12 of the 14 non-financial indicators (except ports cargo traffic and finished steel consumption) witnessed an expected deterioration in July-August 2022 relative to Q1 FY2023, on account of the normalisation of the base after the easing of the Covid 2.0 wave.
Further, ICRA's note pointed out that the pace of YoY growth in Jul-Aug 2022 ranged widely from 2% (electricity generation) to as high as 69% (domestic airlines’ passenger traffic), depending upon the extent of improvement the sector had experienced in July-Aug 2021 after the second wave of Covid-19. Only two indicators, namely, non-oil exports and vehicle registrations, displayed a YoY decline in July-Aug 2022.
Given the available trends for the non-agri indicators, ICRA's note said that "the decline in global commodity prices and the recovery in the demand for services amidst the YoY lag in
kharif sowing, we project the GDP expansion at 6.5-7.0% for Q2 FY2023, a base-effect led moderation from 13.5% in Q1 FY2023."
In Q1FY23, India's real GDP is estimated at ₹36.85 lakh crore, as against ₹32.46 lakh crore in Q1 2021-22, showing a growth rate of 13.5%. While the gross value added (GVA) growth stood at 12.7% in Q1FY23.
Further, ICRA's note added, "The record generation of average daily GST e-way bills in August 2022, owing to pre-festive stocking, indicates a revival in confidence and this coupled with softening commodity prices bodes well for the upcoming festive season."
However, ICRA in its note also said that "the decline in output of key kharif crops such as rice and flagging external demand pose risks to growth and remain the key monitorables. The latter, along with buoyant imports, following relatively stronger domestic demand, is expected to lead to a sharp widening in the CAD to ~3.5% of GDP in FY2023, although we expect some relief on this front in H2 FY2023 relative to the readings foreseen for H1 FY2023."
For the September policy, ICRA expects the MPC to hike rates by 50 basis points and turn data-dependent thereafter, taking a cue from the latest CPI prints and the strength of the Q2 FY2023 GDP growth. Currently, the policy repo rate is at 5.4%.