Even as economic growth lost momentum and hit a four-quarter low of 4.1% in the three months through March, partly dragged down by the Omicron onslaught and fresh supply-chain disruption in the wake of the Ukraine war, it will likely bounce back sharply in the first quarter of this fiscal to record a double-digit expansion.
Economists expected real growth to remain in the range of 10% to 13% in the June quarter. A favourable base —on top of the lifting of localised curbs on mobility imposed in January-February and improving activities in the contact-intensive services sector— will blunt the damaging impact of the persistence of the Russia-Ukraine conflict, elevated inflation and interest rate tightening by the central bank in the current quarter, economist said. However, once the base effect wears off, growth will slow down from the second quarter itself on strong external headwinds and high price pressure. Consequently, real growth in FY23 will ease to 7-8.2%, against 8.8% in FY22, they added.
The Reserve Bank of India (RBI) hiked the repo rate by 40 basis points — the first since August 2018 and the sharpest in about 11 years —in an out-of-cycle action in May and is widely expected to resort to another increase in June.
While real GDP grew 20.1% in the first quarter of the last fiscal, it was still inadequate to make up for the shortfall compared with the pre-pandemic period. The GDP, in fact, shrank 7.3% in the June quarter of FY22 from the same period in FY20. This favourable base will augur well for the calculation of growth during the June quarter.
Aditi Nayar, chief economist at ICRA, said the high-frequency gauges for April and early-May suggest the global headwinds had not dented volume growth so far. “Nevertheless, business margins are likely to be compressed, amidst an incomplete pass-through of input price pressures, while higher inflation would constrain demand growth, notwithstanding the recent excise duty cuts on petrol and diesel,” she said. Thanks to the low base, GDP growth could print at an optically high rate of 12-13% in Q1FY23.
Crisil chief economist DK Joshi said, peak impact of interest rate hikes on GDP will be felt only towards the end of this fiscal. “I see support to growth from a strong bounce-back in contact-based services, which last fiscal was about 11.3% lower than fiscal 2020 levels. But headwinds from slower global growth and higher oil prices have tilted the risks — to our forecast of 7.3% for the current fiscal – downwards,” he said.
India Ratings chief economist DK Pant expected Q1 GDP growth to be in the range of 9% to 10%.
Radhika Rao, senior economist at DBS Bank in Singapore, said, “The subdued Q4FY22 reading is likely to be followed by a strong double-digit growth in June 2022 quarter on base effects.”
Kunal Kundu, India economist at Societe Generale, said, “The visibly weaker activity momentum heading into FY23, elevated inflation, negative rural real wage – all point to a weaker growth print during the current year.” Kundu expected the RBI to further revise down its 7.2% growth forecast for the country for FY23 in its June meeting.
Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, said the outlook remains clouded with uncertainties, especially with escalating crude oil prices. “Further, weak labour markets, limited ability on additional fiscal spends, reduced corporate margins due to rising input prices and weaker global demand remain a concern,” she said.
Some of the high-frequency gauges, too, have recorded some improvement so far this quarter. Manufacturing PMI inched up to 54.7 in April from 54 in the previous month, and services PMI hit a six-month high of 57.9. Exports jumped 31% in April, while growth in the output of six infrastructure industries scaled a six-month peak. GST mop-up continues to be robust — it hit a record Rs 1.67 trillion in April (for March collections). On top of these, monsoon has hit the Kerala coast ahead of schedule, promising good distribution of rain and raising hopes of a good farm harvest.
