Rating agencies revise GDP growth estimates yet again, most now peg it below 7%

• India’s GDP growth for the April-June quarter came below estimates at 13.5% percent.
• Rating agencies have trimmed their annual growth rate projections after the quarterly data was released by the government.
• "We strongly believe that the estimation of manufacturing sector growth needs serious introspection in the sense that IIP is still indexed at 2012 base,” said SBI Ecowrap.
• Analysts are worried that organizations may not go through with all the capex plans that they have announced.

The GDP growth rate for the April-June quarter which came in at 13.5%, fell short of expectations. As a result, rating agencies already lowered their annual estimates, yet again.

Most of the forecasts now believe that Indian GDP will grow at 7% or below. The Reserve Bank of India however believes that it will grow at 7.2%.

SBI Ecowrap trimmed its estimates as it had expected April-June GDP to grow at 15.7%. "We strongly believe that the estimation of manufacturing sector growth needs serious introspection in the sense that IIP is still indexed at 2012 base," the report said.

In addition to SBI Ecowrap, Citibank and Goldman Sachs too trimmed their projections.

“Rising interest rates, uneven distribution of monsoons and slowing global growth will dampen economic momentum,” said Moody’s yesterday. It cut calendar year 2023 growth rate projections to 5.2%.

This is the second round of trimming by agencies after seven of them slashed their growth rate projections after the Jan-Mar quarter data was released by the government.

New set of downgrades

Institution	GDP forecast cut FY23	Earlier projection
SBI	6.8%	7.5%
Citibank	6.7%	8%
Goldman Sachs	7%	7.2%

A lot has changed since the beginning of the year as many agencies hoped that India GDP growth would be above 7%. A big jolt to this belief came this May itself when the following projections have been trimmed.

Downgrades after Jan-Mar quarter GDP data release

Institution	GDP forecast cut FY23	Earlier projection
Moody’s	5.2% (Calendar year 2023)	5.4%
YES Bank	6.9%	7%
International Monetary Fund (IMF)	7.4%	8.2%
Nomura	4.7%	5.4%
FICCI	7%	7.4%
Asian Development Bank	7.2%	7.5%
CRISIL	7.3%	7.8%

High inflation rate is worrying most analysts. “Growth challenges are likely to remain in FY23 and the K-shaped recovery is expected to continue. While many remain hopeful of a recovery in private sector capex, we remain skeptical as recent RBI data indicates that even as the number of projects announced for FY23 are higher than the previous year, the expected cumulative spend remains lower than the pre-pandemic levels,” said a report by YES Bank on August 31.

Most analysts are worried that organizations may not go through with all the high capex plans that they have announced. They maintain a bias towards more downward revisions unless domestic inflation moderates or global commodity prices cool meaningfully.

“Overall, it confirms that growth recovery is not so strong in India. It ideally implies that monetary tightening should not be very aggressive. However, it appears that the terminal repo rate will be 5.75-6% in this cycle with one or two more rate hikes, ending the cycle in December 2022,” said Nikhil Gupta, chief economist at Motilal Oswal Financial Services group.


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