GDP preview: Why is India likely to retain fastest-growing economy tag

Growth in services and manufacturing and private investment rebound likely to have helped economy in Q4

India’s economy, in the latest January-March quarter (Q4 FY23), is expected to show a much-improved growth sequentially and year-on-year, driven by the manufacturing and services sectors and an encouraging rise in private investment.

The official print for Q4 FY23 and full year FY23 will be released by the National Statistical Office later on Wednesday. Analysts expect Q4 GDP growth to be at least 5 per cent, and the consensus is that FY23 GDP growth will be around the official advance estimates of 7 per cent, which will make India the fastest growing major economy.

The Q3 FY23 (October-December) GDP came in at 4.4 per cent growth. In Q4FY22, GDP growth was 4 per cent.

“SBI’s model, based on 30 high frequency indicators from key sectors, and tuned/trained to project the GDP numbers forecasts the quarterly GDP growth for the Q4FY23 at 5.5 per cent. At this rate, India’s GDP growth for FY23 is likely at 7.1 per cent,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India Group.

Ghosh said that there are signs of a renewed surge in manufacturing while supporting the services sector to embrace enhanced efficiency.

“In India, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth,” he said.

A poll by Reuters, last week, of 56 economists pegs Q4 FY23 growth at 5 per cent. An earlier poll by the wire agency, in April, of 45 economists, pegged FY23 GDP growth at 6.9 per cent. However, most analysts now say FY23 growth will at least be 7 per cent, or could even top that. A poll of 15 analysts by Moneycontrol.com sees Q4 FY23 GDP growth at 5.1 per cent.

“Growth recovery remains on track with Q4FY23 GDP growth expected at 5.1 per cent y-o-y versus 4.4 percent in Q3. Recovery is likely to be led by the services sector with a pick-up in trade, hotel and transportation and government expenditure,” said Gaura Sengupta, India economist at IDFC First Bank. Sengupta sees FY23 GDP growth at 7 per cent, same as the NSO’s projections.

Sengupta said that while consumption recovery continues to be supported by urban areas, rural consumption is also showing nascent signs of recovery as real rural wage growth turns positive. She added that capex cycle recovery, which has depended on central government expenditure, got some support from pick-up in state government expenditure and improvement in capacity utilization by the private sector.

Capex cycle indicators showed a steady recovery with pick-up in capital goods imports (10.8 per cent YoY in Q4), steel consumption (17.1 percent YoY in Q4), capital and infrastructure production, said Sengupta.

Last week, Reserve Bank of India Governor Shaktikanta Das said that FY23 GDP growth could be more than 7 per cent. “According to all the recent trends, it will not be a surprise if GDP growth for last year comes above the official estimate of 7 per cent. All the economic indicators for Q4 show that economic activity sustained momentum, and in fact in all the high frequency indicators which we monitor, the momentum was maintained in Q4,” he had said.

The Finance Ministry’s latest Monthly Economic Review said that corporates have started investing in new capacity, buoyed by sustainable growth in activity. During Q4 FY23 the Centre for Monitoring Indian Economy reports the completion of projects worth Rs 60,000 crore and the announcement of new projects valued at Rs 10.9 trillion, the Ministry had stated.

Some analysts still had concerns about the spread of recovery.

“Economic activity in Q4FY23 remained uneven, with domestic demand for services outpacing that for goods and surprisingly robust exports of services amidst a contraction in merchandise items,” said Aditi Nayar, Chief Economist, ICRA Ltd.

Nayar said that lower commodity prices offered relief for margins in some sectors, while trends in investment activity and government spending were mixed. However, unseasonal rains are expected to have affected the rabi output of some crops, weighing upon the growth of agriculture GVA.