A favourable base effect may have helped drive growth sharply higher in April-June, but it was also aided by the economy chugging along its recovery path.
Data released on August 31 by the Ministry of Statistics and Programme Implementation showed India's GDP grew 13.5 percent in the first quarter of FY23, up from 4.1 percent in January-March. While this was the fastest pace in four quarters, it was well below market expectations of 15 percent and the Reserve Bank of India's (RBI) own forecast of 16.2 percent.
"The GDP prints as a mixed bag, largely a story of service sector rebound which also was visible in the private consumption print in the expenditure side," noted Madhavi Arora, lead economist at Emkay Global Financial Services.
As per the data, private consumption jumped 25.9 percent on a year-on-year basis in April-June. The compares rather favourably to the 14.4 percent growth that was seen in April-June 2021 - a period that experienced an extremly favourable base effect but also took a hit from the second wave of the coronavirus pandemic.
The services sector grew 17.6 percent last quarter, while industry expanded 8.6 percent.
"Private consumption is improving, with urban demand getting support from contact-intensive services," said D.K. Joshi, CRISIL's chief economist.
"Had it not been for high inflation and subdued rural demand due to negative real rural wage growth, private consumption would have grown faster," Joshi added.
Also among the positives was the rise in investments, with gross fixed capital formation registering a growth of 20.1 percent.
Meanwhile, the government's consumption expenditure - which supported the economy during the worst phase of the pandemic - rose a mere 1.3 percent.
Further, the widening of India's merchandise trade deficit had a telling impact on the fourth component of GDP - net exports. As per the data, net exports more than tripled from the year-ago period to negative Rs 2.98 lakh crore in April-June.
On the whole, while economists saw some positives signs - Nomura's Aurodeep Nandi termed the sequential momentum "stellar" - the upcoming quarters will see growth slowing significantly, with the latest GDP data likely to force the RBI to lower its full-year forecast of 7.2 percent.
"...Q1 data suggests that RBI's FY23 growth forecast will be revised down to 6.7 percent from 7.2 percent earlier," said Nikhil Gupta, chief economist at Motilal Oswal Financial Services.
IDFC First Bank has acted already, lowering its full-year growth forecast by 30 basis points to 7 percent.
The Indian central bank will next detail its GDP growth forecast on September 30 at the end of the Monetary Policy Committee's three-day meeting. As of now, the RBI sees GDP growth declining to 6.2 percent, 4.1 percent, and 4.0 percent in the final three quarters of the current financial year as the support from a favourable base wanes.
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