India's GDP Growth To Decelerate To 4.5-5.0% In H2; FY24 Growth Seen At 6.0%: ICRA

ICRA Research Report

India’s economic activity has displayed a healthy momentum in H1 FY24, supported by the favorable base, robust domestic demand and continued resilience in consumption of contact-intensive services.

However, the pace of gross domestic product growth is likely to decelerate in H2 FY24 on account of the impact of uneven and sub-par monsoons on agriculture output and the rural economy, lagged effects of monetary tightening on borrower household budgets, narrowing differentials in commodity prices with year-ago levels, continued drag stemming from the weakness in external demand, a potential slowdown in the Government’s capital spending ahead of the 2024 General Elections, and dissipation of the favorable base.

Overall, we expect the GDP to grow by 6.0% in FY24, with a moderation from over 7.0% estimated for H1 FY24 to 4.5-5.0% in H2 FY24, well below the Monetary Policy Committee’s forecast of 5.7-6.0% for the second half of the fiscal.

We believe that the emerging risks to inflation on account of food items and rising crude oil prices are likely to lead to a hawkish pause from the MPC in the upcoming October 2023 meeting.

Limited fiscal concerns and India’s inclusion in the Global Bond Index in early-FY25 are estimated to cap the 10-year G-sec yield in the near term; we expect the yield to trade at 7.00-7.25% in the remainder of CY 2023.

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