After the government reported lower-than-expected GDP numbers for the April-June quarter of 2022-23, experts have also slashed the growth forecasts for the fiscal year. The GDP growth in Q1 FY23 stood at 13.5%, primarily on a low base and improved economic activities. However, the GDP numbers were below the projections made by the key financial institutions, and even the Reserve Bank of India (RBI).

The primary culprit that dragged the GDP growth in the quarter was the measly growth of 4% in the manufacturing sector.

State Bank of India's (SBI) research wing, SBI Research, in its report says it is revising the annual GDP growth forecast for FY23 to 6.8% from 7.5% earlier. "The downward revision is mostly to do with our Q1 GDP estimate that was at 15.7%," says Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI. Its nowcasting model earlier predicted India's economy in the first quarter will grow at 15.7%, with a large possibility of an upward bias.

SBI now says the lower growth in Q1 FY23 also compounds the RBI’s job, with a rate hike trajectory in the next two MPC meets trying to find a neutral ground amidst growth and inflation. Notably, the central bank, in its previous monetary policy announcement, had pegged the country's GDP growth at 16.2% in the first quarter of 2022-23.

"A lot should depend on emerging inflation prints locally," SBI says. The RBI last month hiked the key policy rate for the third time in a row by 50 basis points to 5.4%. With this hike, the key policy rate now reached the pre-pandemic levels and is the highest since August 2019. The next MPC meeting is scheduled during September 28-30, 2022.

The country’s nominal GDP growth came at 26.7% YoY in Q1 FY23 compared to 32.4% in Q1 FY22 and 14.9% in Q4 FY22, with the share of private final consumption expenditure increasing in overall growth, says SBI Research.

Global agency Moody’s Investors Service has also slashed India’s real GDP growth to slow to 7.7% in 2022, amid rising interest rates, uneven distribution of monsoons, and slowing global growth. “Our expectation that India’s real GDP growth will slow from 8.3% in 2021 to 7.7% in 2022 and to decelerate further to 5.2% in 2023,” says the rating agency.

This is the third cut in India’s GDP growth forecast by Moody’s this year. The ratings firm had slashed its growth projections for India during the calendar year 2022 to 8.8% in May. Prior to that, it reduced its February growth projection from 9.5% to 9.1% in March.

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