The Indian economy grew at 7.2% in the fiscal year 2022-23, positively surprising most analysts and exceeding the government’s own projection of 7% GDP growth. The unexpected upside in the GDP numbers is a result of a better-than-expected performance in the last quarter of the fiscal, and powered by services, exports, and agriculture. GDP growth in the quarter ending March 2023 was 6.1%, which is a full percentage point higher than the median forecast of 5.1% by a Bloomberg poll of economists. Second advance estimates for 2022-23 GDP – they were released on February 28, 2023 – had also assumed a 5.1% growth in the March quarter. The latest numbers vindicate RBI governor Shaktikanta Das who, on May 24, said that the 2022-23 GDP numbers could end up being higher than the projected 7% figure.
While the 2022-23 annual GDP growth number is lower than the 9.1% print for 2021-22, it needs to be remembered that the 2021-22 growth was on the back of a 5.8% contraction in 2020-21. RBI’s Monetary Policy Committee (MPC) expects the economy to grow at 6.5% in 2023-24.
“The 2022-23 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,” Prime Minister Narendra Modi said in a tweet.
A disaggregated analysis of the latest GDP numbers shows that consumption and investment have emerged as key drivers of growth. At 34%, the share of Gross Fixed Capital Formation (GFCF) – it measures investment spending – in overall GDP is the highest since 2012-13. However, a lack of momentum in manufacturing – it shows an annual growth of just 1.3% – continues to be a cause of concern. Services, on the other hand, have grown at 9.5%. Trade, hotels, transport, communication and broadcasting services, which has the largest employment share within services has shown an annual growth of 14% in 2022-23.
To be sure, the headline annual and quarterly GDP numbers hide a variation in key drivers of growth in the first and second half of the fiscal. For example, private final consumption expenditure (PFCE) grew at just 2.2% and 2.8% in the quarters ending December 2022 and March 2023 compared to the 19.8% and 8.3% values in the quarters ending June 2022 and September 2022. This suggests that some of the consumption boost in 2022-23 could have been pent-up demand that has since ebbed.
{{/usCountry}}To be sure, the headline annual and quarterly GDP numbers hide a variation in key drivers of growth in the first and second half of the fiscal. For example, private final consumption expenditure (PFCE) grew at just 2.2% and 2.8% in the quarters ending December 2022 and March 2023 compared to the 19.8% and 8.3% values in the quarters ending June 2022 and September 2022. This suggests that some of the consumption boost in 2022-23 could have been pent-up demand that has since ebbed.
{{/usCountry}}GFCF growth was an impressive 8% and 9% in the quarters ending December 2022 and March 2023. Reading the GFCF numbers with government final consumption expenditure (GFCE) clearly shows that the government has shifted the fiscal ballast from revenue spending to capital spending. Annual GFCE growth in 2022-23 is just 0.1%, and it actually saw a contraction in the September and December quarters.
A sustained revival in the investment cycle, however, will require a healthy growth in private consumption growth, which as per the latest quarterly numbers, seems to be losing momentum.
Export and import numbers suggest that the economy has gained significantly due to imports slowing down much more than exports. While goods and services exports grew at 11.1% and 11.9% in the quarters ending December 2022 and March 2023, import growth was 10.7% and 4.9% in these periods.
“March quarter GDP growth came in much higher than expected, led by stronger agriculture, manufacturing, investment and exports. Some of the strength may have been led by statistical factors, i.e. the practice of single deflation in calculating GDP growth. The informal sector has rebounded recently, but with global growth slowing, softer domestic growth prints could follow,” said Pranjul Bhandari, chief India and Indonesia economist at HSBC research, in a note.
“We expect GDP to grow 5.5% in FY24. We expect the RBI to be on hold for the rest of the year, and cut the repo rate by 25bps in 1Q2024,” Bhandari added.
“For FY 23-24, despite today’s upside surprise, we maintain our forecast of 6.3%, with domestic demand driving the rise and the moderation coming largely from weaker manufacturing and exports in a global slowdown. We forecast continued steady GDP growth of 6.5% in FY 24-25. With inflation moderating and expected to stay close to the target, we think the window for rate hikes has closed. We expect RBI to remain on hold at its MPC meeting next week,” Rahul Bajoria, MD and head of EM Asia (ex-China) Economics, Barclays, said in a note.