– By Rumki Majumdar
India released the estimate of GDP data for the Oct-Dec 2022 quarter. The economy grew at 4.4% year over year, close to what we had estimated (4.5% YoY). Although it is a weak quarter of this fiscal, the government significantly revised the past three years’ data increasing the base for this year’s growth estimates. GDP growth for FY 2021-22 was revised up by 0.4 percentage points from 8.7% to 9.1%. The upward revision primarily happened because of the stronger than previously estimated growth in manufacturing and construction activities.
The latest data suggests that private consumption spending was the largest contributor to GDP, and this share has been gradually increasing in the last three quarters. Usually, the Oct-Dec quarter shows a season peak because of the festive season, however, this time it has bucked the trend. It is possible that this was because the inflation in this quarter has been higher as compared to previous years. The consumption expenditure did not reflect the seasonal impact.
To boost consumption, the finance minister during the Union budget FY2023-24 pushed consumers to move to a newer tax regime. The introduction of a new tax scheme is estimated to leave more disposable income in the hands of the young professionals who have a higher marginal propensity to consume.
Sustained growth in spending will be critical. This is essential because private investors are looking for cues to spend on investment, although GDP numbers suggest that private investment is gaining traction. Private investment grew at 8.3%. The number of announced projects is slowly increasing. The credit growth has almost doubled from last year. Going forward, there are risks to consumer spending. Inflation is expected to remain high. At the same time, the RBI
Despite the global slowdown, exports performed well, probably because of the depreciated currency against the dollar, which is the predominant currency for trade. The price of crude oil is likely to remain steady and will likely reduce pressure on import bills. If this trend continues, we expect the trade balance to improve over the next fiscal year from the current situation.
On the production side, GVA (Gross Value Added) growth was marginally higher at 4.6% than GDP suggesting net taxes declined. Growth in agriculture, construction, and electricity remained buoyant. Strong construction activity was probably reflective of government spending on capital infrastructure. But the manufacturing growth continued to be negative for the second consecutive quarter and remains an area of concern. Growth in factory output over the past three months did indicate poor manufacturing sector performance, so poor performance of the sector was not entirely unexpected.
Fiscal prudence reflected on reduced public spending in government consumption as well as GVA in public administration services. In the first 10 months, the fiscal deficit accounted for 67.8% of the target deficit of this FY, which also substantiates the government’s efforts towards keeping its expense in check. The government is likely keeping an eye on its expenses to ensure it follows a strict fiscal consolidation path. The FM did announce in the budget that India will reduce its deficit over the next two years significantly. On the other hand, the non-farm private sector is growing at a rapid pace (5.4%).
In the coming quarter, global uncertainties and runaway inflation will weigh on the outlook. At the same time, the El Nino effect could impact the output of the agriculture sector, which has consistently performed well. We remain cautiously optimistic and expect India to attain 7% growth in FY 2022-23 despite the higher based due to the upward revision of the previous year’s GDP.
(Rumki Majumdar is Economist at Deloitte India. Views expressed are author’s own.)