India’s gross domestic product (GDP) in real terms grew at 6.1% in the fourth quarter of last fiscal, a pace significantly higher than what most analysts expected, official data showed on Wednesday. A solid farm sector, buoyant services sector, a moderate pick-up in manufacturing, robust government capex and a favourable base pushed the quarterly growth. More than anything, net exports boosted the headline figure.
With this, the National Statistical Office’s provisional estimates of the economic growth in FY23 came in at 7.2%, as against the advance estimates of 7%. The pace of growth was slower as compared to 9.1% recorded in FY22, but it represented a growth of 10.1% over the pre-pandemic year, FY20.
The latest data has given some credence to the notion of the government and the Reserve Bank of India, that after a sequential slowdown for the two quarters through Q3, the growth momentum may have returned to an extent, weathering external headwinds.
However, most independent economists feel the growth could slow down in the current fiscal, given the export slump, continued weakness of private capex and a likely weakening of the government’s spending power.
A steady and sharp slowing of the growth in consumption demand since the first quarter of last fiscal belied the supply-side robustness, especially in regard to key service industries. Government consumption remained anaemic through the last fiscal, even as it stepped up capital expenditure.
The latest data somewhat endorsed the RBI’s view of the state of the economy, and its FY24 outlook. A recent RBI paper said that, “although (it is) too early to tell, most recent data arrivals suggest that multilateral institutions – the IMF, in particular — might encounter forecast errors, with actual outcomes surprising them positively.” The IMF had pegged FY23 growth forecast for the country at 6.8%, and cut its FY24 estimate to 6.1% from 5.9%.
Prime Minister Narendra Modi said in a tweet: “The FY23 GDP growth figures underscore the resilience of the Indian economy amidst global challenges. This robust performance along with overall optimism and compelling macro-economic indicators, exemplify the promising trajectory of our economy and the tenacity of our people.”
Chief economic advisor V Anantha Nageswaran said: “We are prepared to stick our neck out and say that the risks to (the Economic Survey forecast 6.5% growth for FY24) are now probably more evenly balanced.”
The gross value added (GVA), a closer gauge of the economic activities, expanded significantly higher than the GDP, at 6.5% in Q4, thanks to a sharp jump in GST revenues, and a reduction in subsidy expenditure, enabled by cessation of the additional grains supplies under the free ration scheme, from December 2022. However, GVA growth for the whole of the last financial year, was still marginally lower than GDP growth at 7%.
The economy had grown by a slower 4.5% in the third quarter of last fiscal and by 4% in the fourth quarter of FY22. In FY23, the growth slowed down from 9.1% in the previous year, which was supported by a favourable base and resumption of economic activities after the pandemic.
While there are incipient signs of a revival of private capex in some sectors like steel and cement, the Q3 capital formation was still greatly aided by government capex. Gross fixed capital formation grew 8.9% in the quarter, upon moderate base (4.9%), as against 8% in the previous quarter.
Private final consumption expenditure in the quarter grew just 2.8% in Q4 against 2.2% in Q3, even as the base was more helpful for the later quarter (4.7%) than the former (10.8%).
Rahul Bajoria, MD and head of EM Asia (ex-China) economics, Barclays wrote: “With weak external demand and the fall in commodity prices pushing down import and export values, net exports improved significantly, adding 1.4pp to headline growth, a swing away from negative contributions in the previous three quarters. In terms of contribution, domestic demand remains the dominant contributor to growth.”
Services growth remained strong, with trade & transport and financial services showing robust expansion.
The latest NSO data is expected to be a key input when the Monetary Policy Committee holds its next meeting between June 6-8 after keeping rates unchanged in the last meeting in April.
Analysts expect the RBI to hold rates till, maybe, the end of the current tightening cycle, and go for rate cuts late in 2023 or early 2024. Manufacturing GVA belied expectations to grow at 4.5% in Q4, after contracting in the second and third quarters by 3.8% and 1.4% respectively. However, for the full fiscal, the sector’s growth still remained low at 1.3%, though higher than 0.6% projected in the NSO’s second advance estimates.
Aditi Nayar, chief economist and head-research and outreach, Icra, said manufacturing growth in the fourth quarter rebounded amid an uptick in the year-on-year growth in manufacturing volumes. as well as an improvement in margins during the quarter, partly on account of a sustained moderation in input costs.
GVA growth in the farm sector during the fourth quarter expanded at the fastest pace last fiscal at 5.5%. It was in fact the highest growth since the fourth quarter of FY21 when it grew by 5.7%. Despite concerns about the impact of untimely rains, agriculture grew by 4% in FY23 as against earlier projection of 3.3%.
The fastest GVA growth amongst sectors was registered in the construction sector at 10.4% in the fourth quarter of the fiscal, followed by “trade, hotels, transport, communication and broadcasting services” that grew by 9.1%, which, however, slowed down over three quarters to Q4.
Financial, real estate and professional services registered a growth of 7.1% while mining grew by 4.3% in the fourth quarter of the fiscal.
Economists expect economic growth in FY24 is likely to slow down due to external factors and dampening of pent up demand. The monsoon would be a key factor to determine growth and rural demand, they feel.
“We expect the economy to slow to 6% this fiscal due to spillover to exports from a slowing world and some impact of interest rate hikes on interest-sensitive segments,” DK Joshi, chief economist at Crisil said.
Quarterly GDP growth for the first, second and third quarter of FY23 was also revised to 13.1%, 6.2% and 4.5% respectively from 13.2%, 6.3% and 4.4% previously.
