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India's double-digit annualised growth is impressive prima facie, but the actual print is around 2 per cent lower than market expectations and is also accompanied by weak sequential momentum, Acuite Ratings said in a report.


Acuite acknowledges growing downside risks to its existing FY23 GDP growth estimate of 7.5 per cent on account of the adverse impact of uneven distribution of rainfall on the Kharif rice crop, the expectation of a material slowdown in global demand, and the likelihood of some back-loaded expenditure rationalisation by the Central government to meet its fiscal deficit target.

A weak seasonally adjusted print coupled with a high annualised growth number underscores the role of a favorable statistical base in the headline GDP.

The combination of a favourable statistical base, complete unlocking of economic activity, spill-over of pent-up demand particularly in the contact-intensive services sector, and the high vaccination coverage has helped India to post a double-digit expansion in Q1 FY23 GDP.

"Going forward, while tapering of the favourable statistical effect would result in deceleration in GDP growth in the coming quarters, incremental support would come from festive and pent-up demand, improved monsoon, the government's Capex push, and recent softness in international commodity prices," the report said.

GDP growth for quarter ended June was weaker than Morgan Stanley consensus estimates. However, domestic demand remained relatively healthy. Lower-than-expected growth in QE June creates a downside risk of 40bp to its F2023 growth estimates, foreign brokerage, Morgan Stanley said in a report.

A research report from the State Bank of India's Economic Research Department said, "Headline GDP hides more things than it reveals".

"We strongly believe that the estimation of manufacturing sector growth needs serious introspection in the sense that IIP is still indexed at 2012 base. The CPI basket has also not changed since 2012 and this has also possibly resulted in overstating CPI inflation at multiple times," the report said.

Despite sequential contraction, the strong YoY growth partly reflects the favourable base effect, as Q1FY22 growth was severely impacted by the Covid Delta wave, Emkay Global Financial Services said in a report.

Going ahead, even as recovery in domestic economic activity is yet to become broad-based, protracted global drags in the form of elevated prices, supply shortages, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output, the report said.

This will put pressure on domestic growth, which is yet to be broad-based and still lacks the next lever of secular growth. We see downside risks increasing for our 7% growth forecast for FY23.