MUMBAI: Rating agency Icra Ratings has revised its GDP growth forecast for India to 6.5% in the September quarter, down from 7.6% a year ago, citing a combination of factors that weakened overall growth. Heavy rains disrupted mining and construction activities, while weak corporate earnings offset the positive effects of a revival in government capital expenditure (capex) and strong agricultural output. This has resulted in the lowest growth projection yet. Official GDP data will be released on November 30.
This forecast further supports the view that the growth engine is losing momentum. While the Reserve Bank of India maintains its full-year GDP growth forecast at 7.2%, and Moody’s Ratings also expects growth to be 7.2% for calendar year 2024, Icra's outlook indicates a slowdown.
In the June quarter, GDP growth slowed to 6.7% from 8.2% a year earlier, marking the lowest rate in six quarters. In the September quarter, Icra expects GDP growth to ease further to 6.5% from 6.7% in Q1, as the impact of heavy rains and weak corporate margins countered the boost from government capex and healthy kharif sowing.
The agency also anticipates a slight dip in gross value added (GVA) growth, estimating it to slow to 6.6% in Q2 from 6.8% in Q1. This reflects a deceleration in industrial growth (to 5.5% from 8.3%) despite a pick-up in services (to 7.8% from 7.2%) and agriculture (to 3.5% from 2%).
Icra expects net indirect tax collections to grow by 9-9.5%, up from 8% in Q1. Consequently, the GDP-GVA growth wedge in real terms is expected to remain inverted in Q2, the agency noted.
Aditi Nayar, Icra's Chief Economist, explained, "While the September quarter saw tailwinds from a pick-up in capex post-elections and strong sowing of kharif crops, sectors like mining, electricity, and retail were hit by heavy rains. Corporate margins also weakened in several sectors, leading us to project a slight dip in GVA and GDP growth to 6.6% and 6.5%, respectively."
Nayar remains optimistic about future growth, noting that the benefits of healthy monsoons, strong kharif output, and replenished reservoirs should boost rural sentiment. She also highlighted the significant potential for increased government capex, which needs to grow by 52% in the second half of the year to meet the budget estimate.
However, Nayar also pointed to several headwinds, including the slowdown in personal loan growth, which may impact private consumption, as well as the effects of geopolitical developments on commodity prices and external demand.
"On balance, we expect a pick-up in economic activity in the second half of the year, which should support GDP and GVA growth, resulting in a full-year expansion of 7% and 6.8%, respectively," Nayar concluded.