India’s economic growth shot up by 6.1 per cent in the March quarter of FY23, beating analysts’ expectations, as the expansion in manufacturing and construction surprised on the upside, reflecting sustained strength in domestic demand amid a gloomy global outlook.
A poll of 56 economists by Reuters last week pegged Q4 FY23 growth at 5 per cent.
Higher than expected growth in fourth-quarter gross domestic product (GDP) led to an upward revision in overall economic growth in FY23 to 7.2 per cent from 7 per cent estimated earlier, the provisional estimates of GDP released by the National Statistical Office showed.
“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,” said Prime Minister Narendra Modi on Twitter.
Gross value added (GVA) at basic prices grew 6.5 per cent in the March quarter and 7 per cent in FY23. However, the size of the Indian economy, at Rs 272.4 trillion in FY23, is Rs 67,039 crore lower than the first advance estimate, released ahead of the FY24 Budget this year. After contracting for two consecutive quarters, the manufacturing sector rebounded to grow at 4.5 per cent in the March quarter due to an improvement in margins during the three-month period, partly on account of a sustained moderation in input costs.
The labour-intensive construction sector grew in double digits at 10.4 per cent during the same quarter despite aggressive interest rate hikes by banks and higher retail inflation.
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Agricultural output is estimated to have registered a robust growth rate of 5.5 per cent during the quarter despite unseasonal rain in March while that in the services sector picked up sequentially to 6.9 per cent, led by double-digit growth by the trade, hotels and transport sector.
“This (the higher than expected GDP growth) suggests that despite global headwinds and continued geopolitical uncertainties caused by the Russia-Ukraine conflict, the recovery is on track,” said Sunil Kumar Sinha, principal economist, India Ratings.
Aditi Nayar, chief economist at ICRA, said with the expansion relative to the respective pre-Covid levels of FY19 improving to a robust 17.3 per cent in Q4 FY23 from 15.3 per cent in Q3 FY23, “the underlying momentum of the Indian economy remains healthy”.
Growth in private final consumption expenditure, or private spending, marginally accelerated on a sequential basis in Q4 to 2.8 per cent, remaining the weakest link in economic recovery. Government spending, however, picked up to grow at 2.3 per cent after contracting for two consecutive quarters.
Growth in gross fixed capital formation, which represents investment demand in the economy, picked up sequentially to 8.9 per cent during the fourth quarter, signalling the sustained focus of the government on capex and initial signs of pickup in private investment. What also helped growth is that the negative impact of the trade balance (net exports) was almost wiped out in the March quarter due to strong services exports growth and lower imports, with a 90.4 per cent decline over the same quarter a year ago.
However, economists expect the growth momentum to slow in FY24.
Madan Sabnavis, chief economist at Bank of Baroda, said a growth number higher than expected in FY23 would put pressure on growth performance in FY24.
“Under conditions of a global slowdown, maintaining growth at 6 per cent plus will be challenging,” he added.
Rajani Sinha, chief economist at CARE Ratings, said she expected growth to moderate to 6.1 per cent in FY24 due to a combination of factors including the base normalising, slowing domestic discretionary demand, subdued external demand, and financial uncertainties.
“Rising rural wages, record foodgrains production, and expectations of lower food inflation bode well for the rural demand outlook. However, El Nino conditions during the monsoon are a key risk for agriculture and rural income,” she added.