The rating agency ICRA has maintained its annual GDP projection at 7.2 percent for this fiscal year
Citing the second highest business activity index reading in 13 months in April, rating agency ICRA on Tuesday forecast the economy to grow 12-13 percent in the first quarter of the current fiscal. However, ICRA has maintained its annual GDP projection at 7.2 percent for this fiscal citing worries over inflation and the resultant RBI tightening.
"Our business activity monitor for April at 115.7 indicates that activity was roughly 16 percent higher than the year-ago (period) and pre-COVID levels in spite of the global headwinds," ICRA Chief Economist Aditi Nayar said. This high growth may persist in May, especially on an annualised basis, which should translate into a double-digit GDP expansion in the first quarter at 12-13 percent. However, this may not sustain and the annual growth in volume and activity may moderate, she said.
According to Nayar, higher input costs may dampen gross value added (GVA) growth to single-digits. "Therefore, we maintain our GDP growth forecast at 7.2 percent for FY23." Citing rising inflation worries, she said the consumer price index is expected to average at 6.3-6.5 percent this fiscal.
The biggest upside risks to inflation and growth come from the runaway fuel prices and the impact of the Russia-Ukraine war. If the war does not de-escalate in the near term, the impact will be much farther than anticipated, she said. This is also the primary reason for maintaining low GDP growth forecast at 7.2 percent for the full year and higher one on a low base effect, she said.
On the interest rate-front, Nayar said the central bank is expected to hike rates by 25 basis points each in the June and August policy reviews and September action will depend on the direction of the war and its impact on the commodity prices.
Earlier in the day, the agency, in a report said its business activity monitor stood at 115.7 in April, which is the second highest in 13 months and low base exaggerated growth to 16.1 percent.
The index stood at 123.7 in March compared to 107.8 in February. The monitor includes high frequency indicators related to 14 industrial and service sectors and is an index of high frequency economic indicators that gauge economic activity each month.
The monitor is constructed using 14 monthly high frequency indicators including auto production, output of Coal India, electricity generation, non-oil merchandise exports, rail freight traffic, ports cargo traffic and vehicle registrations.
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