Citing the second-highest business activity index for 13 months in April, the rating agency on Tuesday forecast economic growth of 12-13 percent in the first quarter of the current fiscal year. However, Icra has kept its annual GDP forecast at 7.2 percent for this fiscal year, citing concerns about inflation and the resulting tightening of the RBI, Trend reports citing Pechip.
“Our business activity monitor for April at 115.7 shows activity was around 16 percent higher year-on-year (period) and pre-COVID despite global headwinds,” Icra chief economist Aditi Nayar told PTI.
This high growth could continue in May, especially on an
annualized basis, which should result in double-digit Q1 GDP growth
of 12-13 percent. However, this cannot be sustained and annual
growth in volume and activity may weaken, she said.
They think higher input costs could dampen GVA growth to single digits. “Therefore, we maintain our FY23 GDP growth forecast of 7.2 percent.”
Citing rising inflation concerns, she said the consumer price index is expected to average 6.3 to 6.5 percent this fiscal year.
The main upside risks to inflation and growth come from skyrocketing fuel prices and the fallout from the war in Ukraine. Unless the war de-escalates in the short term, the impact will be much wider than anticipated, she said.
This is also the main reason for keeping the low GDP growth forecast of 7.2 percent for the full year and higher due to a low base effect.
On the interest rate front, Nayar said the central bank is expected to hike rates by 25 basis points in both June and August policy reviews, and September’s actions will depend on the direction of the war and its impact on commodity prices.
Earlier in the day, the agency said in a report that its business activity monitor came in at 115.7 in April, the second highest in 13 months, and a low base exaggerated growth to 16.1 percent.
The index stood at 123.7 in March versus 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 measuring economic activity each month.
The monitor consists of 14 monthly high-frequency indicators, including automatic production, the issuance of
Power generation, export of non-oil goods, rail freight, port freight and vehicle registration.