Analysts rerate prospects despite robust HFI data
NEW DELHI: A day after the National Statistical Office (NSO) released provisional GDP estimates for 2021-22 and the quarter ending March 2022, high frequency indicators (HFI) underlined the ongoing economic recovery in the Indian economy. However, a large number of analysts have either made a downward revision to their growth forecasts for the Indian economy for the current fiscal year or highlighted downside risks to existing projections, highlighting the inflationary threat to medium term growth and continuing weakness in the informal sector.
Two key economic indicators, monthly Goods and Services Tax (GST) collection for the month of May ( it captures economic activity in the month of April ) and Purchasing Managers’ Index (PMI) for manufacturing, painted a strong picture of the ongoing economic recovery. While GST collections have stayed above the Rs 1.4 lakh crore for the third consecutive month, PMI manufacturing for April came at 54.6, making it the eleventh consecutive month when it has stayed above the critical threshold of 50 which signifies an improvement in economic activity. PMI services data -- it has also stayed above the 50 threshold for the last nine months -- will be released on June 3. In other news, the country’s largest car maker Maruti Suzuki reported a 7.1% month on month increase in car sales in April despite continuing supply chain disruptions.
The optimism seen in such HFI indicators, however, did not prevent most analysts from raising red flags about economic prospects going forward. Expecting GDP growth in 2022-23 at a “below-consensus” 6.8%, HSBC Chief India Economist Pranjul Bhandari said that while “pent-up services demand, strong urban purchasing power, and strong bank balance sheets” will continue to drive growth in the first half of the fiscal year, it could begin to slow down in the second half. Bhandari cited four factors -- dissipation of services demand, rise in power tariffs hurting urban demand, persistence of weakness in the informal sector affecting formal sector performance and weak global growth hurting exports-- for this.
Rahul Bajoria, MD & Chief India Economist, Barclays made a sharp downward revision to the 2022-23 projected growth rate from 7.8% to 7%. Citing headwinds from rising prices, falling profitability and the weaker global economy, Bajoria said that he expected RBI to “cut its growth projections modestly during its upcoming policy review next week”.
The MPC of the RBI will meet from June 6-8. The MPC had projected a 7.2% GDP growth for 2022-23 in its April meeting and while it did cite downward risks to growth, it did not give a number in its unscheduled May meeting. Another research note by Nomura economists Sonal Varma and Aurodeep Nandi made a downward revision of 10 basis points – one basis point is one hundredth of a percentage point – to their last FY23 growth forecast of 7.4%, arguing that “the current recovery is unsustainable, owing to higher inflation, tighter monetary policy and global growth slowdown”.