Elevated temperatures across India could not only affect the country's agricultural output but also keep inflation at elevated levels, according to India Ratings and Research (Ind-Ra).

The ratings agency cautioned that this can have an impact on rural demand, which has been under stress in the aftermath of the Covid-19 pandemic.

The National Statistical Office (NSO) has pegged the agricultural output to grow at 4.3% year-on-year in the fourth quarter of financial year 2022-23.

The India Meteorological Department (IMD) has warned of the possibility of severe heat waves during March-May 2023. The March to May period is going to be hotter than usual, with enhanced probability of occurrence of heatwave over many regions of Central and adjoining Northwest India, IMD said in February.

The met department also issued an advisory to farmers amid higher day temperatures in Punjab, Haryana, and Rajasthan. Unusually hot weather during wheat flowering and maturing period leads to loss in yield. Unseasonal heat waves had adversely affected wheat output in March last year, forcing the government to restrict wheat exports due to a shortfall in rabi production.

Ind-Ra expects the annual GDP for 4Q FY23 to come in at around 4%.

The NSO as per its second advance estimates has retained the FY23 GDP growth at 7%. However, India Ratings and Research (Ind-Ra) believes there are downside risks to this estimate and the actual GDP growth may come in lower. "The GDP growth works out to be 5.1% in 4QFY23, after factoring in NSO's SAE for FY23. This looks optimistic, as the pent-up demand which had provided thrust to the growth is normalising, exports which had been buoyant are facing headwinds from the global growth slowdown and credit growth is facing tighter financial conditions," the ratings agency says.

India's GDP grew 4.4% during the quarter ended December 31, 2023, dragged down by slowing exports and tepid consumer demand. Retail inflation, measured by the Consumer Price Index (CPI), jumped to 6.52% in January 2023 from 5.72% in December 2022, breaching the Reserve Bank of India's (RBI) upper tolerance limit of 6%.

Ind-Ra expects the retail inflation to stay firm at around 6.5% due to sticky food & beverages and core inflation in February 2023. The agency believes the retail inflation trajectory would be impacted by the likely decline in wheat production, an uptick in vegetable prices and stickiness in core inflation.

The ratings agency said the industrial recovery is weak and has yet to become broad-based. The industrial output growth came in at 4.3%, despite core infrastructure industries (having a weight of 40.3% in Index of Industrial Production) growing at a three-month high of 7% year-on-year in December 2022.

India's merchandise exports dropped 6.6% year-on-year to $32.91 billion in January 2023. This was the second successive month of contraction. "The weak goods exports mirrored the anaemic manufacturing activity. The global manufacturing Purchasing Managers Index remained in contraction at 49.1 in January 2023," says Ind-Ra.

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