Ratings agency ICRA has lowered India’s FY23 GDP growth forecast to 7.2 per cent from an earlier projection of 8 %.

Besides, the rating agency projected GDP expansion in FY22 at 8.5 %, which is modestly lower than the National Statistical Office’s (NSO’s) second advance estimate of 8.9 %.

“Following the elevated commodity prices and fresh supply chain issues arising from the Russia-Ukraine conflict, as well as the renewed lockdowns in parts of China, we have pared our forecast of India’s real GDP growth in FY2023 to 7.2 per cent from 8 per cent, ” said AditiNayar, Chief Economist, ICRA.

“Higher prices of fuels and items such as edible oils are likely to compress disposable incomes in the mid to lower income segments, constraining the demand revival in FY2023.”

However, she cited that the prescient extension of free foodgrains under PradhanMantriGaribKalyan Ann Yojana (PMGKAY) until September 2022 may continue to offer some respite to the food budgets of vulnerable households.

“In the mid to upper income segments, normalisation of behaviours after the third wave is set to result in a pivot of consumption towards the contact-intensive services that were avoided during the pandemic, constraining the growth in demand for goods in FY2023, ” she said.

Furthermore, the agency pointed out a gradual rise in the capacity utilisation to 74-75 %  in Q3FY23 from 71-72 % in Q4FY22, leading to a potential modest delay in the awaited broad-basing of capacity expansion by the private sector.

At present, capacity expansion is being undertaken in select sectors such as cement, steel, as well as sectors covered under the PLI schemes.

As per ICRA, an early kick-off of the Government of India’s (GoI’s) budgeted capex programme remains crucial to boost investment activity in H1FY23.