India’s GDP growth is expected to moderate to 6% in FY2024 from 6.9% in FY2023, on account of flagging external demand, according to ratings agency ICRA. In its latest economic outlook report, the ratings agency says the weak monsoon poses downside risk of up to 50 basis points (50 bps).

India’s GDP growth is expected to inch up to 4.5-5% in Q4 of FY2023 from 4.4% in Q3 of FY2023, it says. This increase is due to a healthy rise in rabi output, an uptick in YoY growth of high-frequency indicators in Jan-Feb 2023 partly led by a low base, robust services demand and a moderation in commodity prices, even as the unseasonal rainfall in mid-March 2023 could adversely impact crop yields.

"ICRA expects consumer sentiments to improve through FY2024, auguring well for consumption demand, although it would remain uneven. The potential return of El Nino conditions could hurt the prospects of crop output and rural demand, and put upward pressure on food inflation. Nevertheless, the sizeable increase in the budgeted capex by the Government of India (GoI) and several states is expected to provide support to economic activity, amid signs of an uptick in private capex, although execution remains key," the ratings agency says.

In February, the Indian Meteorological Department issued an advisory to Indian wheat farmers cautioning about the heatwaves in India.

Sustained elevated inflation (particularly of low-income and middle-income households), and adverse weather events would pose risks to consumption in FY2024, says ICRA. In rural areas, the consumption and farm incomes, are likely to bear the brunt of crop damage on account of a heatwave or excess/shortfall in monsoon.

In order to curtail inflation, the ratings agency expects another rate hike by 25 bps by the RBI (Reserve Bank of India) Monetary Policy Committee in April 2023. The country’s CPI inflation in January and February stood at 6.52% and 6.44%, respectively, which is above the RBI’s upper limit of 6%.

"After taking into account the CPI inflation for Jan-Feb 2023 and ICRA’s expectations for March 2023, the Q4 FY2023 inflation average is expected at 6.3%, higher than MPC’s estimate of 5.7%, suggesting that another rate hike may be in the offing in April 2023. While we foresee a moderation in the CPI inflation in FY2024, the MPC is also likely to consider the uncertainty related to emerging developments such as the occurrence of El Nino, which could pose material upside risks to the food inflation outlook. In ICRA’s view, the MPC should pause through the remainder of FY2024 and assess the transmission of policy tightening, with a shift in focus towards growth amidst a likely drag from exports," the ratings agency says.

It estimates the CPI inflation to average at 6.7% in FY2023 as against MPC’s projection of 6.5% for the same period. For FY2024, says ICRA, CPI inflation will average at 5.4%. The WPI inflation in January and February this year stood at 4,4% and 3.9%, respectively. The rating agency estimates the WPI inflation to average at an elevated 9.5% in FY2023, and moderate thereafter to ~2-3% in FY2024.

The country’s merchandise exports registered a contraction by 2.8% year-on-year during H2 (October to February) of FY2023 after witnessing an expansion of 16.9% during the April to September period of FY23. ICRA projects merchandise exports to contract by 6% in FY2024 after rising 3% in FY23, owing to slackening external demand and lower commodity prices. It also expects the country’s services exports to witness a slowdown in FY24.

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