India is all set to report Q1FY23 GDP figures on 31 August, and analysts at ICRA expect the economy to grow in double digits at 13%, owing to a low base and robust recovery in the contact-intensive sectors following the widening vaccination coverage. Meanwhile, Barclays estimates India’s economic growth to have accelerated to 16% on-year in the Apr-Jun quarter. The firm expects India’s economy to show a full recovery from COVID in the quarter under review, with the services sector fully open, trade activity at a peak and domestic demand holding strong.
The robust sequential recovery in place since Q1FY21, when COVID-19’s Delta variant forced widespread lockdowns, likely hit another high in Q1FY23, said Barclays analysts Rahul Bajoria and Virinchi Kadiyala in a report. “The economy was fully opened, with all activity restrictions removed. While some supply headwinds were evident in the form of lingering intermediate-good shortages and higher input costs, we expect both the domestic goods and services sectors to show impressive recoveries in the first quarter,” they said.
Agricultural growth may slip, mining GDP likely to grow
In terms of the sectoral breakdown, Barclays expects agricultural production and demand for rural goods to stay resilient despite some weather-related issues and higher costs. The rural sectors may show a slower pace of expansion, however, as workers are likely returning to urban centres for employment. “We expect agriculture growth to slip to around 3.0% in Q1 FY23, down modestly from 4.1% in Q4 FY22.” In mining, the analysts expect overall growth to be robust due to elevated electricity demand and infrastructure spending, despite reports of coal shortages and depleted inventories. Mining GDP should grow by around 12% on-year in the Apr-Jun quarter, which would be the strongest rate since Q2 FY21, they said.
Manufacturing, electricity, mobility sectors likely to show growth
According to the Barclays report, the manufacturing and electricity segments are likely to witness double-digit growth, as strong exports, coupled with an unusually hot summer added to demand for electricity. “This expected jump in manufacturing comes despite relative underperformance in the auto sector, which we expect to continue to revive through H2 CY2022,” it added. While export trade volumes were high during the quarter, higher commodity prices increased India’s import bill, which exerted a drag on overall economic activity. Fuel sales were moving sideways during the period, but given the very low base, strong performance is expected to be seen in mobility indicators such as air and rail traffic to add to economic activity.
RBI to deliver another 50bp of rate hikes over next to MPC meetings
The analysts further stated in the report that even credit expansion has picked up amid resilient deposit growth, which should support financial-services GDP. “Government spending likely remained steady, even though outlays for subsidies likely started to rise, which would weigh on net taxes. Overall, we think the resilient growth backdrop means the RBI will retain its focus on containing inflation,” they added. Barclays expects RBI to deliver another 50bp of rate hikes over two meetings in September and December, taking the Repo rate to 5.90%.