India’s GDP growth is projected to spike to a four-quarter high 13 per cent in Q1 (April-June) FY23 due to low base of Covid 2.0 and robust recovery in contact-intensive services, according to ICRA.

The Q1 FY23 GDP projection is a sharp jump from 4.1 per cent in Q4 FY22. Overall, ICRA expects GDP growth in Q1 FY23 to trail the 16.2 per cent projected by the Monetary Policy Committee (MPC).

The rating agency said the gross value added (GVA) growth is expected to rise to 12.6 per cent from 3.9 per cent in the preceding quarter.

ICRA expects the sectoral growth in Q1 FY23 to be driven by the services sector (17-19 per cent; 5.5 per cent in Q4 FY2022), followed by industry (9-11 per cent; 1.3 per cent).

However, the GVA growth in agriculture, forestry and fishing is projected to decline to around 1 per cent in Q1 FY23 from 4.1 per cent in Q4 FY22, on account of the heat wave in several parts of the country, which supressed wheat output.

Aditi Nayar, Chief Economist, ICRA, noted that the anticipated double-digit GDP expansion in Q1 FY23 benefits from the low base of the second wave of Covid-19 in India in Q1 FY22 as well as the robust recovery in contact-intensive sectors following the widening vaccination coverage.

“In ICRA’s assessment, there has been a shift in demand towards contact-intensive services from discretionary consumer goods for the mid-to-higher income groups. This, in conjunction with the emerging cautiousness in export demand, and the impact of high commodity prices on volumes as well as margins for the industrial sector, are likely to result in a relatively moderate industrial growth,” she said.

Additionally, the impact of the heat wave on wheat harvest is expected to result in a low growth for the agricultural sector in Q1 FY23.

“The recent moderation in commodity prices, if sustained, should help to ease inflationary as well as margin pressures and translate into improved demand for discretionary goods and higher value-added growth, respectively.

“Based on this, ICRA anticipates that GDP growth in Q2 (July-September) FY2023 may print in the range of 6.5-7.0 per cent, exceeding the MPC’s forecast of 6.2 per cent,” Nayar said.

The agency noted that notwithstanding the higher year-on-year volumes displayed by many lead indicators in Q1 FY23, owing to the low base of Covid 2.0, the spike in global commodity prices following the escalation of the Russia-Ukraine conflict during the quarter is expected to have compressed demand for discretionary goods as well as the margins of corporates, thereby impacting value-added growth.

ICRA said the G’s capex, infrastructure/construction output and new project announcements showed encouraging trends in Q1 FY23, along with a robust order-book position of construction and capital goods companies and resilience in housing sales, as evinced by stamp duty collections.

However, project completions, states’ capex, and capital goods output were subdued, suggesting that recovery in investment demand remained uneven.