Economy Likely To Log In A Tepid 6 Pc Growth Next Fiscal: CRISIL

The economy is likely to log in 6 per cent growth next fiscal, in line with consensus estimates, driven by an increased capex by the private sector, rating agency CRISIL said on Thursday. The private sector capex is expected to deliver double-digit revenue growth for the second year on the trot, it added.

The economy is projected to grow 7 per cent this fiscal, according to the official forecast, but many private forecasters have a lower outlook, ranging from 6.5 to 6.9 per cent. The agency also sees the economy averaging 6.8 per cent growth over the next five fiscals. CRISIL further said it expects the corporate revenue to log in double-digit rise again next fiscal.

In its annual growth forecast, CRISIL Chief Economist DK Joshi said a complex interplay of geopolitical events, stubbornly high inflation and sharp rate hikes to counter that have turned the global environment gloomier. On the domestic front, the peak impact of the rate hikes -- 250 basis points since May 2022, which has pushed interest rates above pre-Covid levels, will play out more in the next fiscal.

Retail inflation is expected to average 5 per cent in FY24 from 6.8 per cent in FY23, owing to the high-base effect and some softening of crude and commodity prices, Joshi said. However, a good rabi harvest would help cool food inflation, provided the monsoons are normal while the slowing economy should moderate core inflation.

However, he said risks to inflation are tilted upward, given the ongoing heat wave and the World Meteorological Organization's prediction that an El Nino warming is likely over the next couple of months. Amish Mehta, the agency's managing director, said the medium-term growth prospects are healthier, and over the next five fiscals, the GDP is expected to grow at 6.8 per cent annually, "with the next fiscal delivering 6 per cent, driven by capital and productivity increases."

He also pointed to the increasing sustainability footprint of capex. At present, nearly 9 per cent of infrastructure and industrial capex is green, he said, expecting this number to rise to 15 per cent. On the external sector, Joshi said the country's external vulnerability is expected to decline with a narrower current account deficit (CAD) and modest short-term external debt.

While CAD is expected to narrow to 2.4 per cent of GDP or $ 8 billion next fiscal from an estimated 3 per cent of $ 100 billion this fiscal, its financing may face challenges as foreign portfolio flows remain volatile and external commercial borrowings are less attractive.

In the corporate sector, Joshi said, revenue growth is expected to touch double-digits in fiscal 2024 despite a global slowdown and interest rate hikes. This will be driven by a 10-12 per cent growth in revenue for non-commodity sectors despite the cooling prices.  In fiscal 2023, India Inc booked 16-18 per cent year-on-year growth in revenues after the commodity supercycle boost in fiscal 2022. Revenue increase this fiscal has been led by an estimated 18-20 per cent rise in non-commodity segments, with commodities recording an anaemic 5-7 per cent growth coming off a high base, he said.

Similarly, the operating margin is expected to improve by 120-170 bps in fiscal 2024, aided by benign commodity prices, the full effect of price hikes taken in fiscal 2023 and volume growth. Next fiscal will also see a more broad-based margin expansion with margins improving across sectors as cooling commodity prices reduce costs, while revenue gets a lift from volume expansion, Joshi noted.

On the industrial capex side, Suresh Krishnamurthy, a senior director with the agency, said infrastructure spending will drive overall capex by 12-16 per cent next fiscal. Overall industrial capex is seen rising to nearly Rs 5.7 lakh crore on average between fiscals 2023 and 2027, compared to Rs 3.7 lakh crore in the past five fiscals. Nearly half of this incremental capex is being driven by the production-linked incentive scheme and new-age sectors, said Krishnamurthy. 

According to Hetal Gandhi, a director with the agency, merchandise exports are expected to grow at a tepid 2-4 per cent next fiscal and 5-7 per cent growth this fiscal, with the PLI scheme supporting demand owing to global supply chain diversification and friend-shoring strategies.