NEW DELHI:  Although India's double-digit annualised growth appears strong on the surface, Acuite Ratings said in a study that the actual print was about 2 percent below than market forecasts and was also backed by weak sequential momentum.

Due to the negative effects of uneven rainfall distribution on the Kharif rice crop, the expectation of a significant slowdown in global demand, and the likelihood of some back-loaded expenditure rationalisation by the Central government to meet its fiscal deficit target, Acuite acknowledges growing downside risks to its current FY23 GDP growth estimate of 7.5 percent.

A strong annualised growth number and a dismal seasonally adjusted print highlight the importance of a strong statistical base in determining the headline GDP.

A favourable statistical base, complete economic activity unlocking, spillover of pent-up demand, especially in the contact-intensive services sector, and the high immunisation coverage all contributed to India posting a double-digit growth in Q1 FY23 GDP.

The report stated that while the tapering of the favourable statistical effect would cause a slowdown in GDP growth in the upcoming quarters, additional support would come from seasonal and pent-up demand, an improved monsoon, the government's push for Capex, and recent softness in global commodity prices.

GDP growth for the June-end quarter was lower than anticipated by Morgan Stanley. But domestic demand remained largely stable. Foreign brokerage Morgan Stanley stated in a study that there is a 40 bp downside risk to its growth projections for F2023. This risk arises from QE June's slower-than-anticipated growth.

Headline GDP conceals more than it exposes, according to a study by the Economic Research Department of the State Bank of India.

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

Despite the sequential decline, Emkay Global Financial Services stated in a report that the strong YoY growth is partially due to the favourable base effect because the Covid Delta wave had a significant negative influence on Q1FY22 growth.

Future global drags such as high pricing, supply shortages, declining corporate profitability, demand-curtailing monetary policies, and dimming global growth prospects weigh on output even though the domestic economic recovery has not yet reached a broad-based stage, the report stated.Domestic growth will be under strain since it is still not broadly based and does not yet have the next lever for secular growth. In relation to our FY23 prediction of 7 percent growth, we see rising negative risks.

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