India’s gross domestic product (GDP) grew 6.1 per cent in the fourth quarter of the financial year 2022-23 (Q4 FY23), compared with 4.4 per cent growth in the preceding quarter. With this, India continues to maintain its streak of world-beating economic growth beating all expectations. For the entire FY23, the growth rate came in at 7.2 per cent.
Lakshmi Iyer, CEO (investment & strategy) of Kotak Investment Advisors, said, “The economy is firing all cylinders as is seen in Q4 India GDP growth of 6.1 per cent. This robust growth boosted by services, consumption and capital goods seems to suggest a broad-based recovery. While rural demand is yet to pick up, urban demand remains intact. This bodes well from a fiscal standpoint too, as tax buoyancy also improves.”
Gaura Sengupta, India economist at IDFC FIRST Bank, said, “Q4FY23 GDP growth was much stronger than expected at 6.1 per cent as against 4.5 per cent in Q3, (5.1 per cent IDFC FIRST Bank estimate). The outperformance was even more impressive on the GVA metric with Q4FY23 growth at 6.5 per cent. Details reveal that improvement in growth was broad-based across services, manufacturing and agriculture.”
In the latest Q4FY23 GDP data released on Wednesday, the manufacturing sector GVA growth stood at 4.5 per cent in Q4FY23, reflecting a reduction in cost pressures which improved profits of listed companies. The construction sector grew at 10.4 per cent, reflecting double-digit growth in consumption of finished steel. Government services growth accelerated, reflecting higher expenditure by the Centre (revenue expenditure excluding interest and subsidy rose by 5.8 per cent YoY in Q4 as against 2.2 per cent in Q3) and state government expenditure also picked-up in Q4.
Sunil Sinha, principal economist at India Ratings and Research, said, “This (Q4 GDP data) suggests that despite the global headwinds and continued geopolitical uncertainty/friction caused by the Russia-Ukraine conflict, the recovery is on track. A closer look though suggests that higher provisional GDP growth of FY23 than the second advanced estimate has primarily been driven by higher exports and lower imports in 4QFY23.”
He added that on the demand side, gross fixed capital formation (GFCF) and exports in 4QFY23 witnessed reasonably good growth. Government final consumption expenditure (GFCE) recorded a low single-digit growth of 2.3 per cent in 4QFY23 but it was on high base of 4QFY22.
“On the supply side, agriculture grew at 5.5 per cent yoy in 4QFY23 and 4 per cent yoy in FY23 (FY22: 3.0 per cent). However, the industrial sector grew at 6.3 per cent yoy in 4QFY23 and 4.4 per cent in FY23,” he added.
Aditi Nayar, chief economist and head (research and outreach) at ICRA Ltd, said the GDP expansion in Q4 FY2023 was appreciably higher than expected, while remaining uneven and confirming the hopes of a sequential pickup in the pace of growth of economic activity to 6.1 per cent from the bottom of 4.5 per cent seen in Q3 FY2023.
She added that with the expansion relative to the respective pre-covid levels of FY2019 improving to a robust 17.3 per cent in Q4 FY2023 from 15.3% in Q3 FY2023, the underlying momentum of the Indian economy remains healthy.
Outlook for FY2024 GDP
Nayar said ICRA projects growth of real GDP in FY2024 at 6.0 per cent, with a downside risk of up to 50 bps in the event that an El Nino affects the monsoon rains. At the same time, frontloaded capex by the GoI and the states and a rapid execution of infra projects could provide an upside to our GDP estimates for the fiscal. “We foresee the nominal GDP growth at 10 per cent for FY2024.”
Inflation is expected to moderate in FY2024 relative to FY2023 which is a positive for household budgets and consumption. However, the rise in home loan EMIs and its impact on the budgets of urban households and their consumption demand, contraction in exports and their impact on employment, and the impact of a potential El Nino on crops, food prices and farm incomes remains to be seen, she said.
Ranen Banerjee, partner (economic advisory services) at PwC India, said, “The GDP numbers are a pleasant surprise with such a strong showing. The momentum bodes well for FY24 growth with the externalities of high government capex kicking in with a lag and above 6 per cent growth on the face of external headwinds is a distinct possibility if rain gods oblige.”
Lakshmi Iyer, CEO (investment & strategy) of Kotak Investment Advisors, said a positive impact is expected on fiscal in FY24 due to RBI dividend to the government with macro tailwinds in India’s favour, the stage seems set for a plateau in rates in coming months.
India Ratings’ Sinha, however, said “The road ahead is not going to be easy so long as PFCE does not recover fully and become broad-based. In fact, the real wage growth became nearly flat or even turned negative in some months of FY23 due to high inflation. Since much of the growth in consumption demand is driven by the wage growth of the household sector, a recovery in their wage growth is an imperative for a sustainable economic recovery.”