India GDP Data | Gradual recovery, capex rebound a positive, say experts

Private final consumption expenditure rose a mere 1.8 percent year-on-year in January-March, while gross fixed capital formation - a proxy for investments was up 5.1 percent.

At 8.7 percent, a favourable base effect helped propel India's FY22 GDP growth rate to the highest in at least 17 years. But the huge statistical influence means it is more important than ever to look at the numbers that lie beneath the headline.

According to Suvodeep Rakshit, senior economist at Kotak Institutional Equities, the underlying GDP numbers are indicative of only a gradual recovery.

"From the expenditure side, private consumption as well as investment growth were muted in Q4 FY22 which reflected in the production side with contraction in manufacturing and weak growth in construction as well as services," Rakshit noted.

Private final consumption expenditure rose a mere 1.8 percent year-on-year in January-March, while gross fixed capital formation - a proxy for investments was up 5.1 percent.

Meanwhile, gross value added of the manufacturing sector contracted by 0.2 percent in the last quarter. Chief Economic Adviser V Anantha Nageswaran termed the contraction in manufacturing as an "aberration".

"Growth in Q1 FY23 will be high given a low base.... We expect FY23 GDP growth to be around 7.3 percent with much of the growth being propped up by Q1 FY23 print. While taming inflationary pressures will be the primary target, it is unlikely that policy makers will take their eyes of the growth trajectory, especially as recovery is gradual and uneven," Rakshit of Kotak Institutional Equities added.

However, Sujan Hajra of Anand Rathi Shares & Stock Brokers was more optimistic, saying there were "several positive indicators" in the data.

"The rebound in capex in FY22 is the biggest positive. Even private consumption shows signs of improvement. But for large trade deficit and subdued increase in government consumption, GDP growth could be in double digits in FY22 and close to 8 percent in Q4 FY22," Hajra noted.

Gross fixed capital formation increased by 15.8 percent in FY22 after having contracted by 10.4 percent in FY21.

"Despite the ongoing geopolitical uncertainties, supply disruptions, high commodity prices, inflation and monetary tightening, we expect India to continue to be the fastest growing major economy of the world in FY23 as well with 7.5 percent growth," Hajra added.

According to the growth forecasts released by the Reserve Bank of India (RBI) in early April, GDP growth for FY23 is seen at 7.2 percent. The quarterly breakdown of the central bank's growth forecast is as follows: 16.2 percent for April-June, 6.2 percent for July-September, 4.1 percent for October-December, and 4.0 percent for January-March 2023. However, these numbers could be revised downwards when the Monetary Policy Committee's next interest rate decision is announced on June 8.