India’s GDP growth more than halved to 6.3% in the July-September quarter from 13.5% in April-June. At 6.3%, the latest GDP growth number is in line with the Reserve Bank of India’s (RBI) own forecast of 6.3%. In nominal terms, India’s GDP grew by 16.2% last quarter. While economists are cautious about India’s growth prospects going forward, they believe that growth is expected to remain resilient despite global headwinds on the back of strong domestic demand. FY23 GDP growth is pegged at 6.5-7.0%, and growth in the second half of FY23 is expected to be in the 4.25-4.5% range.
FY23 GDP growth pegged at 7%
“Real GDP has increased by 6.3% in Q2 FY23 in line with RBI’s forecast. The GDP for H1FY23 has grown by 9.7%. The growth in gross fixed capital formation has been robust at 15.3% in the first half and is likely to run in double digits in the second half as well. With full year forecast for FY23 growth in the vicinity of 7%, the second half GDP for FY23 is likely to be in the 4.25-4.5% range,” said Deepak Agrawal, Chief Investment Officer, Debt Fund, Kotak Mahindra AMC.
“After a subdued government spending in the first half, the pick-up in second half will provide support to growth. Recent fall in crude prices and falling inflation expectations will continue to boost private consumption, thereby aiding growth. On a qualitative aspect, the pick-up in share of private consumption to 59.2% of GDP in 1H 2022-23 from 55.4% in 1H 2021-22 and Gross Fixed Capital Formation to 34.7% of GDP from 33.1% last year holds a silver lining for Indian economy,” he added.
Cautious on India’s growth prospects amid global headwinds
“GDP growth at 6.3% in 2QFY23 was in line with our expectation of 6.2%. However, GVA growth was slightly lower than expected at 5.6%. The internals indicate a substantially weak growth in the industrials sector led by manufacturing while services sector growth has been steady given the recovery in contact-based services. We expect the same trend to continue into 2HFY23. We remain cautious on India’s growth prospects as the global demand risks slowing down and lagged impact of domestic monetary policy actions. GDP growth in FY23 is likely to be in the range of 6.5-6.8%,” said Suvodeep Rakshit, Chief Economist, Kotak Institutional Equities
Growth to remain resilient on the back of strong domestic demand
“The GDP grew by 6.3% y-o-y, in line with the expectations. We are observing normalization in growth rates compared to the previous quarter due to waning covid effect. The private consumption growth remains robust. The growth is expected to remain resilient despite global headwinds on the back of strong domestic demand,” said Ritika Chhabra- Economist and Quant Analyst, Prabhudas Lilladher Pvt Ltd
35 bps rate hike Dec RBI MPC likely
“Going forward, real GDP growth is likely to be around 4.5% on-year in 2HFY23, leading to 7% growth in FY23. July-September GDP growth data is unlikely to influence RBI monetary policy. Though the consensus is a hike of 35 bps on 7 December, a 50 bps hike cannot be ruled out. US payroll data on 2 December will be a decider,” said Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services.
Downside risks to 7% FY23 GDP forecast due to intense global headwinds
“India’s GDP growth in Q2FY23 at 6.3% YoY has been slightly lower than our forecast and expectedly, has been driven by a strong pickup in the services sector as compared to the previous year which had been impacted by the pandemic fears. We believe that the manufacturing sector will continue to see a lack of momentum due to the decline in exports and may impact the overall growth print for FY23,” said Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.
“While we continue to peg GDP growth at 7.0% given the reasonably healthy domestic demand, downside risks to the forecast have increased due to the intense global headwinds. We continue with our expectations of a moderate hike of 30-35 bps in the repo rate in Dec-22 as the growth data has been in line with RBI’s forecasts,” Chowdhury added.
India likely to be the fastest-growing major economy
“The 6.3% GDP growth in Q2 FY23 marked a big drop over the last quarter. Yet, given the sharply asymmetric base, the drop was expected and growth during the quarter was in line with expectations. Despite the slowdown in Q2FY23 versus Q1FY23, India remains top-3 rank among the G-20 economies in terms of GDP growth. The IMF expects India to be the fastest-growing major economy in 2022 and 2023. Expect ~7% growth in FY23 and 6-6.5% in FY24. Expect modest recovery in industry and resilience of services,” said Sujan Hajra, Chief Economist, Anand Rathi Share and Stock Brokers.