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GDP Growth To Decelerate To 4.5-5.0% In H2FY24 From Over 7.0% In H1: Report

Economic activity appears to be growing at a healthy pace in quarter two (Q2) of the financial year (FY) 2024, according to Icra report

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The rating agency Icra expects India's gross domestic product (GDP) growth to moderate to 4.5 to 5.0 per cent in H2FY2024, well below the  Monetary Policy Committee's (MPC's) estimate of 5.7 to 6.0 per cent for the period.

The agency in a report stated that the growth momentum is unlikely to be sustained in H2, on account of the impact of sub-par monsoons on the rural economy, potential easing of the government's capex ahead of the General Elections, fading of the base effect, etc.

Icra believes that the emerging risks to inflation on account of food items and rising crude oil prices are likely to lead to a hawkish pause from the MPC in the upcoming October 2023 meeting. 

"Limited fiscal concerns and India’s inclusion in the Global Bond Index in early FY2025 are estimated to cap the ten-year G-sec yield in the near term; we expect the yield to trade at 7.00 to 7.25 per cent in the remainder of CY2023," the report stated.

Notably, India’s GDP growth had witnessed an uptick to 7.8 per cent in Q1 FY2024 from 6.1 per cent in Q4 FY2023, amid a supportive base and robust domestic demand. Although an acceleration was expected, the pace of growth was slightly lower than the MPC’s projection of 8.0 per cent for that quarter, it added.

The momentum of economic activity has been quite healthy in the first two months of Q2 FY2024. The year-on-year (YoY) growth in the Icra business activity monitor, an index of high-frequency indicators, had risen from an average of 7.2 per cent in Q1 FY2024 to 8.1 per cent in July 2023 and further to a six-month high of 10.6 per cent in August 2023. 

"The early data for September 2023 is also positive," Icra report mentioned.