ICRA cuts FY23 GDP growth estimate sharply to 7.2% on Ukraine conflict impactMumbai: Domestic rating agency ICRA on Tuesday cut its FY23 real gross domestic product (GDP) growth estimate by a sharp 0.8 per cent to 7.2 per cent, primarily driven by the fallout of the Russian invasion of Ukraine.Its chief economist Aditi Nayar attributed the downward revision to elevated commodity prices and also fresh supply chain issues arising from the conflict in Ukraine.It can be noted that the Reserve Bank expects a GDP growth rate of 7.8 per cent in FY23. The central bank is set to develop the first bi-monthly monetary policy for the next fiscal year in early April when it will revisit the number.Real GDP growth is likely to moderate to 3-4 per cent in Q4FY22 from 5.4 per cent in Q3FY22, which will lead to a real GDP growth rate of 8.5 per cent in FY22.As expected, the third wave had a much smaller impact on confidence levels than the first two waves. While the early data for March 2022 is mixed, the Russia-Ukraine conflict and the associated surge in commodity prices have heightened uncertainty, and the expected margin compression is likely to squeeze GVA growth.”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 FY23,” Ms Nayar said.Welcoming the extension of the free foodgrains scheme till September 2022, she said it would offer some respite to the food budgets of vulnerable households, while in the mid to upper-income households, a normalisation of behaviours after the third wave will drive consumption towards the contact-intensive services that were avoided during the pandemic.Exports of some items will rise to meet global demand amid the supply crunch. The capacity utilisation levels will rise to 74-75 per cent in Q3 FY23 from 71-72 per cent in Q4 FY22, the agency said, adding this can lead to a “modest delay” in the much-awaited broad-basing of capacity expansion by the private sector.The agency said that an early kick-off of the Centre’s budgeted Capex programme remains crucial to boost investment activity in the first half of FY23.”However, a concern is that the execution risk is shifting to the states, with a considerable portion of the step-up in the GoI’s budgeted capital spending coming through the enlargement in the size of interest-free Capex loan to the state governments to Rs 1 lakh crore in FY23 from Rs 15,000 crore in FY22,” it added.Nayar said the protracted geopolitical tensions and high commodity prices pose downside risks to the growth outlook, with margin compression set to squeeze the growth of the gross value added (GVA) during the period of the conflict.”Moreover, the K-shaped recovery appears likely to continue with the formal sector gaining market share in FY23,” she said, warning that the socio-economic trend will continue.The agency feels healthy reservoir levels offer insurance against a potentially below-average rainfall in 2022. Still, as economic activity normalises, there could be a shift in the availability of agricultural labour across different regions, affecting acreage in some states, which has been the key driver of Agri output during FY21 and FY22.Inadequate availability of fertilisers also poses a concern for the farm sector, pointing out that systemic inventory is significantly below historical levels across all fertilisers, chiefly on account of lower imports amid limited availability in the international market and elevated prices.So, even with a normal monsoon and healthy reservoir levels, acreage, the output may not rise meaningfully in FY23, constraining agricultural GVA growth to below 3 per cent, the rating agency said.
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