The GDP has now moderated from 13.5 per cent in the first quarter of FY23 largely due to pandemic-related statistical distortions.
Lower GDP growth can also be attributed to aggressive rate hikes by the Reserve Bank of India (RBI) in order to tame the high inflation levels in the country.
In addition to these factors, the slowdown in exports and consumer demand has also contributed in bringing down the numbers. The dent in consumer demand can be linked with the bullish rate hikes by the RBI to bring down inflation in the past few months. Meanwhile, slowdown in external demand could be a consequence of the rate hikes by major central banks around the world.
Going ahead, the Indian economy is expected to grow at 7 per cent in FY23. New Delhi also revised the economic growth for 2021-22 upwards to 9.1 per cent from 8.7 per cent earlier.
Here is what the experts have to say:
Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of IndiaBased on the FY23 yearly numbers, Q4 GDP growth should be coming around 5.1%, based on an unchanged base. Revisions across board in both yearly and quarterly growth numbers of recent past have seen real GDP growth for FY20, FY21 and FY22 being revised upwards by 20, 77 and 42 bps, respectively. The huge revisions in FY21 GDP growth are primarily due to substantial upward revisions in manufacturing growth (+351 bps) and construction (+239 bps).
This indicates that the manufacturing and construction sectors’ pandemic impact was not as significant as believed earlier. In rupees terms, the revision accounted for an increase of ~Rs. 98,000 crore in these sectors combinedly. However, seasonally adjusted real GDP growth series show modest dip in economic momentum, with decline in growth at -0.7% qoq in Q3 FY23 compared to 1.2% qoq in Q3 FY22 and -2.1% qoq in Q2 FY23. Additionally, disaggregated credit growth data for January 2023 shows a large sequential dip to around Rs. 37,300 crores, against a Rs. 3.5 trillion growth in December. Are these early indications of a slowdown against a spate of rate increase and global uncertainties?
Sonal Varma, Aurodeep Nandi, Research Analysts at Nomura
We believe India’s growth cycle has peaked, and a combination of weaker global growth and tight domestic and global financial conditions could further impair the growth drivers viz. exports, investment and discretionary consumption. We forecast GDP growth to moderate from 6.7% y-o-y expected in FY23 to 5.3% in FY24 (Consensus: 5.8%; RBI: 6.4%). We also see downside risk to our view of a growth recovery in FY25 (6.9%).
Q4 GDP data are in line with the RBI’s forecast, and are unlikely to influence the next policy decision. The upside surprise in January CPI inflation and sticky core inflation seems conducive to making the April meeting a live one for a hike, which is now the consensus base case. We maintain our expectation of a policy pause in April, as we believe the MPC will deem it important to assess the impact of the cumulative hikes delivered thus far before determining the next step. Owing to growth and inflation surprise likely moderating in the coming quarters, we expect the start of a rate easing cycle from October.
Rajani Sinha, Chief Economist, CareEdge
The slowdown in growth compared with the second quarter was on account of normalisation of base and a contraction in the manufacturing sector’s output. However, sequential improvement in Q3 over Q2 signals the economy’s resilience despite challenging global economic environment.
As the external demand conditions remain weak, it is critical that domestic demand should accelerate. Improving rural demand and rising rural wages are the positive developments for aggregate demand.
However, there is expected to be some fizzling out of the pent-up domestic demand seen in the last few quarters. Government focus on capex and improving intent of private sector to invest should be supportive of investment demand but lower external demand and raising interest rates poses downside risks for investment revival. We expect GDP growth to moderate to 6.1% in FY24.
Radhika Rao, Economist at DBS Bank
I think, when we read these numbers we need to be mindful of two things – the first thing is that in the past two years what has happened is in 2020 and 2021 first half of the year we had quite a lot of lockdowns or restrictions. Then it began to unwound. And there was some sense of back-ended pickup inactivity, so that was the case in 2020 and that was also the case in 2021 calendar year. So when we come to 2022, you are basically dealing with quite a bit of base effects.
Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
Overall, the Q3 GDP print has been largely in line with the trend that we have observed in our proprietary Acuite Macro Economic Performance (AMEP) index which has held on to the same levels since Nov-22 after the festive activity. While there is a lack of momentum in rural demand and weakness in exports, it is partly offset by the steady demand for goods and services in the urban economy. With some support from the base factor, this will help the economy to notch up a print close to 7% in FY23.
Going ahead into the next fiscal however, the factors that will play an important role are the impact of higher interest rates on urban demand, the stability of the monsoon, and the absence of the base factor; we have kept our GDP growth forecast for FY24 at 6.0% for now without factoring in any additional risks from monsoon and external factors.
Rumki Majumdar, Economist, Deloitte India
GDP growth in Q3 turned out to be in line with what we had predicted (4.5%) early this year. The upward revision of previous year GDP will likely make it difficult to grow at the anticipated rate because of the higher base effect. We remain cautiously optimistic even as there are significant risks to growth. Private consumption spending was the biggest contributor. However, sustained growth in consumer spending is a concern which has led to hesitation amongst business to increase private investments.
The government is likely to keep an eye on its expenses to ensure it follows a strict fiscal consolidation path. 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 FM did announce in the budget that India will reduce its deficit over the next two years significantly.
Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities
One of the reasons I would say that there is some amount of sluggishness is if you look at the consumption growth, which has been at around 2% and obviously the government expenditure has been negative. Obviously, a good part is that investment growth is quite decent. I think we should be positive about the fact that the investments are still happening even though there is a bit of sluggishness and sluggishness in consumption.
But, if you look at the FY23 growth number of 7%, I think that could be a bit of a stretch. We know some of the companies have been talking about the fourth quarter of FY23 being a bit more sluggish. So, growth over and above the current growth rate that we have seen in third quarter might be a bit difficult, but we will see what kind of a number we see for the fourth quarter. My sense is that it will be around the third quarter numbers itself. So, 7% could be scaled down closer to 6.8%.
D.K. Srivastava, Chief Economic Advisor, EY India
Second advance estimates for 2022-23 have retained the overall annual growth at 7% but revised the external sector contribution to this overall growth. In the first advance estimates, the contribution of net exports to real growth was (-)2.8% points. This has improved by nearly 1% point to (-) 1.9% points. This was counterbalanced by a fall in the domestic demand components, especially in private and government consumption expenditure.
Thus, domestic demand appears to have weakened relative to the earlier estimate. The revisions announced today also indicate a reassessment of the contraction in the Covid year of 2020-21. The negative growth in that year is now assessed at (-)5.7% which is much lower than its first provisional estimate at (-)7.3%. Thus, the cumulative average real GDP growth rate over the period 2019-20 to 2022-23 is 3.2%. From a long-term viewpoint, Covid has caused a reduction of nearly 4% points as compared to the potential growth of 7%.”
Dipti Deshpande, Principal Economist, CRISIL
The slowdown in real gross domestic product (GDP) to 4.4% on-year in the third quarter of this fiscal, compared with 6.3% in the previous one, was driven by both external and domestic factors. The global demand slowdown — particularly for goods — had already begun to hurt India’s export and industrial growth in the second quarter. On top of this, the third quarter also reflected waning momentum in domestic consumption demand, possibly coming from sectors that were laggards in catching up post the pandemic and as a result had seen a surge in recent quarters.
Some of these factors will continue to be a drag on growth going into next fiscal. Our GDP growth estimate of 6% for next fiscal primarily accounts for the impact of slower global growth and higher interest rates biting into growth for some interest rate sensitive sectors, A sharper-than-expected global growth slowdown and forecasts of an El Nino that can disturb Indian monsoons are the other risks to watch out for.