ICRA projects GDP growth to moderate to below 6% in Q3

India had registered a Gross Domestic Product (GDP) growth rate of 7.6 per cent in the July to September period. The rating agency said the year-on-year growth in ICRA Business Activity Monitor eased for the second consecutive month to a six-month low of 8.1 per cent in December 2023 -- as against 7.9 per cent in December 2022 and 9.6 per cent in November 2023.

Despite a moderation in year-on-year growth, the index witnessed a sequential uptick of 1.4 per cent in December 2023, driven by eight of the 14 non-financial indicators. Image Courtesy: Freepik.

Rating agency ICRA has projected the GDP growth rate to slow down to below 6 per cent in the December quarter, mainly account of sharp fall in kharif crop output, and weak progress in rabi sowing for some crops.

India had registered a Gross Domestic Product (GDP) growth rate of 7.6 per cent in the July to September period. The rating agency said the year-on-year growth in ICRA Business Activity Monitor eased for the second consecutive month to a six-month low of 8.1 per cent in December 2023 -- as against 7.9 per cent in December 2022 and 9.6 per cent in November 2023.

"This can be attributed to a combination of factors, including easing in momentum of activity after the end of the festive period, tapering of demand for electricity and petrol with the onset of the winter season in North India, as well as unfavourable base effects for some indicators," it said.

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Despite a moderation in year-on-year growth, the index witnessed a sequential uptick of 1.4 per cent in December 2023, driven by eight of the 14 non-financial indicators.

ICRA further said while the Business Activity Monitor suggests that growth in economic activity remained healthy in the third quarter of the ongoing fiscal, the trends across a majority of indicators point to some softness vis-à-vis the previous quarter, partly on account of base normalisation.

"Given this, along with the slump in government's capex in October-November 2023 (-8.8 per cent year-on-year), and ICRA's expectations of little-to-no growth in the agri GVA (Gross Value Added) owing to the sharp fall in kharif crop output and weak progress of rabi sowing for some crops, we project the GDP growth to moderate below 6 per cent in Q3 FY24 from 7.6 per cent in Q2 FY24," ICRA said.

The agency also said the average daily vehicle registrations during January 1-16, 2024 were 39.2 per cent higher than the year-ago period. However, these were 1.8 per cent lower than registration of 6,46,000 units/day in December 2023, owing to the inauspicious Kharmas period, as well as seasonality, it added.

Additionally, the year-on-year growth in electricity demand has risen mildly to 3.4 per cent in January 2024 (up to January 15) from 1.6 per cent in December 2023, while remaining muted owing to an elevated base.

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