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Informist, Tuesday, Oct. 8, 2024

 

MUMBAI – Economists at Kotak group have lowered their India GDP growth forecast for the current financial year ending March by 20 basis points to 6.7%, as the Indian economy is showing "few incipient signs of fatigue in growth". The economists also trimmed their FY26 GDP growth forecast by 20 bps to 6.5%.

 

The growth forecast for the current year is sharply lower than that of the Reserve Bank of India's projection of 7.2%. India's GDP grew 6.7% in Apr-Jun and 8.2% in FY24. 

 

Few economic activity indicators are showing signs of weakness in Jul-Sep, Kotak group economists Upasna Bhardwaj and Suvodeep Rakshit said in a report. They cited slower government capital spending during Apr-Aug, moderating bank credit growth, lower manufacturing and services Purchasing Managers' Index prints for September, and a fall in passenger vehicle sales as indicators which are pointing to weakening activity.

 

Manufacturing Purchasing Managers' Index eased to 56.5 in September, the lowest since January. Services Purchasing Managers' Index for September fell to 57.7, lowest in 10 months. Passenger sales growth data also showed first contractions in Jul-Aug since April 2022. GST mop-up for September at INR 1.73 trillion grew 6.5% on year, the slowest growth since June 2021. 

 

"Besides cyclical factors such as weather patterns and religious calendars, structural factors such as job creation and regulatory actions remain key headwinds," economists said. "The upcoming festive and post-festive periods will be important to evaluate whether these signs turn to red flags or just a blip."

 

Kotak said that while the government's capital expenditure after the national election, it still may not reach the budgeted targets at the current pace. For FY25, the government has allocated INR 11.11 trillion for capital expenditure in the Budget, of which it has spent just 27.1% as of August end.

 

"While structural headwinds in the labour market have been weighing on demand, we have been highlighting that hiring trends in urban India will also weigh on demand," the report said. "Even as most indicators remain stable, we see some downside to Jul-Sept GDP growth." The RBI sees Jul-Sept GDP growth at 7.2%.

 

Kotak said it continues to expect global growth, labour markets and credit conditions to impart a weaker growth impulse in the second half of the current financial year and first quarter of the next financial year.  End

 

Reported by Ashna Mariam George

Edited by Deepshikha Bhardwaj

 

 

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