Agency cited potential impact on demand revival as higher fuel, commodity prices reduce earnings
Agency cited potential impact on demand revival as higher fuel, commodity prices reduce earnings
Rating agency ICRA has slashed its 2022-23 growth forecast for India’s GDP to 8% due to increased demand for commodity prices and supply chain challenges arising from the Russia-Ukraine conflict, as well as higher prices for fuel and edible oils. has been reduced from 7.2%. To squeeze household income.
The agency expects growth this year to be 8.5%, lower than the Office for National Statistics’ official advance estimate of 8.9%, it said in a note on Tuesday. Prolonged geopolitical tensions, renewed lockdown in some parts of China and higher commodity prices pose downside risks to the growth outlook, ICRA warned, with companies facing narrower margins that could impact the economy. Value added (GVA) can hurt growth.
“Furthermore, the K-shaped recovery is likely to continue in the coming year with the formal sector gaining market share,” said Aditi Nair, chief economist, ICRA, adding that higher prices of commodities such as fuel and edible oils likely to reduce disposable income. In the middle to low income group, impeding demand revival in 2022-23.
While the extension of free foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till September 2022 may provide some relief to the food budget of vulnerable households, Ms Nair said that could drive ‘behavioral normalization’ in the middle to high income group. Consumption of intensive services which were till now avoided during the COVID-19 pandemic. This, he said, could further disrupt the demand for goods in the coming year.
These headwinds may delay private investment revival, as capacity utilization in the industry is expected to reach only 74%-75% by the third quarter of 2022-23, up from around 71%-72% in the current January-March quarter. Is. ,
“In the view of ICRA, the utilization would need to cross 75% for broad-based capacity expansion to be undertaken by the private sector. The most recent data released by the central bank pegs the capacity utilization at 68.3% for the second quarter of 2021-22,” ICRA said. As of now, new capacity building is taking place in cement, steel and some of the sectors covered under the Production Linked Incentive Scheme.
While early March 2022 figures are mixed, the Russia-Ukraine conflict and the associated jump in commodity prices have added to the uncertainty, and expected margin compression is likely to squeeze GVA growth. ICRA expects real GDP growth to be 3%-4% in the current quarter, up from 5.4% in the previous quarter. The agency said the 8.5% GDP growth this year would mark a ‘mild growth of 1.3%’ relative to pre-pandemic levels.
The agency said the launch of the government’s budgeted capital expenditure program is crucial to boost investment activity in the first half of the coming year. “However, there is a concern that the performance risk is shifting to the states, with a major part of the step-up in the Centre’s budgeted capital expenditure coming through an increase in the size of interest-free capex loans to the state governments. 1 lakh crore in 2022-23 from ₹15,000 crore this year,” it said.