India’s gross domestic product (GDP) grew by 13.5% in the June quarter (Q1FY23), according to data released by the National Statistics Office (NSO). It is a four-quarter high, but much lower than 16.2% predicted by the Monetary Policy Committee. Still post-pandemic tailwinds essentially lifted the GDP in Q1FY23 even if we were to discount the low base, this marks a stellar rise in sequential momentum.
Compared with the GDP in the corresponding quarter three years ago (Q1FY20), which represented the pre-pandemic period, the GDP in Q1FY23 was just 3.8% higher. The economy will likely see slower growth in the current quarter and the coming few quarters, due to a waning of the base effect and a slowing of exports. The external headwinds also could hit private capex plans. Finance secretary TV Somanathan said the Q1 data are in sync with the government’s expectations that GDP growth for the full year would be in the 7-7.5% range.
The NSO data reflected strong corporate earnings, but a steady improvement in industrial capacity utilisation over several quarters was yet to meaningfully translate into fresh corporate investments. The growth in gross value added (GVA) in agriculture was the sharpest in nine quarters at 4.5%, while the overall GVA growth was 12.7%. The manufacturing GVA grew at a lower-than-expected rate of 4.8% and the GVA in ‘trade, hotels, transport and communications etc’ was still 15.5% lower than the pre-pandemic level (Q1FY20).
Though improving bank credit, higher capacity utilsation and the perceived benefits from global supply chain diversification are seen to support domestic demand in the short term, the dip in external demand and rising interest rates could offset these gains. Some high frequency indicators are already a pointing to a loss of momentum since June. Data released separately showed that the growth in output of eight core infrastructure sectors slowed to 4.5% in July — the lowest in six months — against 13.2% in June and 9.9% in the year-ago period.
According to the Controller General of Accounts (CGA) data released on Wednesday, while the Centre’s budgetary capital expenditure was up 62% on year in April-July, the larger revenue expenditure grew by a lower-than-budgeted rate of 5%. Though capital expenditure by Central Public Sector Enterprises has done well so far in FY23, states’ spending on new asset creation has slowed.
Nominal GDP, on which key Budget numbers are benchmarked, jumped as much as 26.7% in the first quarter of FY23 to 64.95 trillion, reflecting elevated inflationary pressure and base effect. It will help inflate the base for the calculation of FY23 fiscal deficit, especially if inflation continues to remain high in the coming quarters.
The pull-down impact of net exports remained high in the June quarter. While exports registered decent growth in Q1, imports rose at a scorching pace, inflating the trade deficit to the record level. The share of exports in GDP (in real term) rose to 22.5% in the June quarter from 22% a year ago, that of imports spiked to 27.8% from 22.6% a year earlier.
(Additional Input from PTI)
