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India Ratings in a report has projected just 4 per cent Gross Domestic Product (GDP) growth for India for the fourth quarter and said the final growth numbers for the full year (FY23) will be lower than the second advance estimate of 7 per cent. The agency sees many downside risks to this estimate, such as the pent-up demand, which had provided thrust to growth, is normalising; exports that had been buoyant are facing headwinds from the global slowdown and credit growth is facing tighter financial conditions. The ongoing spell of elevated temperatures in the north in February has raised concerns regarding wheat production.

In addition, the Met department has warned of the plausibility of severe heatwaves during March-May. This can not only affect agricultural output, which has been pegged to grow at 4.3 per cent in Q4, but also keep inflation at elevated levels that can impact rural demand, which has been under stress since the pandemic. Further confounding the growth expectations are the fall in merchandise exports, which contracted 6.6 per cent to $32.91 billion in January. This was the second successive month of contraction, mirroring an anemic manufacturing activity. Like exports, even merchandise imports fell 3.6 per cent in January to $50.66 billion, owing to a decline in commodity prices. This was the sharpest fall in 25 months.

On the positive side, the trade surplus in services almost doubled to $16.48 billion in January from $8.39 billion a year ago. As a result, the overall trade deficit improved to $1.26 billion in January from $8.95 billion in January 2022, which was $6.65 billion in December 2022. Another downside risk is the low liquidity in the banking system, after remaining in a huge surplus since the beginning of the pandemic. The liquidity in the banking system slowed to a four-month low of 0.43 per cent of the net demand and time liabilities in January from 0.53 per cent in December 2022 due to a robust credit demand in January.