Q1 GDP growth reaffirms resurgence in domestic economic momentum: SBI Research

Construction activity witnessed boom in Q1 FY23 at 16 percent.

India’s economy expanded 7.8 percent in the June quarter from a year ago, accelerating further from the 6.1 percent growth recorded in the preceding (Jan-March FY23) quarter. State Bank of India’s (SBI’s) economic research department has said the GDP numbers reaffirmed the resurgence in domestic economic momentum, notwithstanding the ascending global shocks and challenges, and the growth is broadly in line with consensus estimates.

However, the growth for the quarter, at 7.8 percent, was lower than the rate projected by the Reserve Bank of India (RBI) at 8 percent.

SBI in its latest Ecowrap report, however, mentioned that though the figures are “asymmetrical if one looks at the leading indicators in various niche areas, in particular manufacturing where the EBIDTA growth of exBFSI (banking, financial services and insurance) entities, helped with lower input prices, a robust order book and crowding in of private-led capex has grown handsomely in last quarter by 15 percent, sustaining the positive momentum of FY’23”.

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According to the report, buoyant growth in the services sector, at 10.3 percent, ensured the economy grew by 7.8 percent while the GVA also grew by 7.8 percent.

The agriculture sector, the most consistent sector since the pandemic, grew 3.5 per cent year-on-year (YoY). Financial, real estate and professional services have witnessed a robust growth rate of 12.2 percent.

“India’s merchandise exports registered contraction for the sixth consecutive month in July 2023, declining by 15.9 percent) (YoY) due to negative momentum. The contraction in exports was broad-based, with more than two-third of the export basket (19 out of 30 major commodities) registering a YoY decline, while domestic drivers such as private consumption and fixed investment are offsetting the drag from the contraction in exports,” said the report.

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The report claimed to have found discrepancies in GDP released by the government on August 31, saying that there are possible fault lines in CSO data methodology regarding manufacturing, exports and service sector vis-à-vis leading indicators in niche sectors. SBI economists also questioned whether there is a need for a “Rethink & Revisit” moment in Q1 data interpretation.

According to the report, data from different economies indicate that the gap between GDP and GDI (officially known as “the statistical discrepancy”) is typically about 1 percent. However, recently it come to notice that this discrepancy has been much larger in the case of various economies example the US.

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“El Nino has significantly impacted the core monsoon month of August. While India as a whole received 9 percent deficit rainfall, the August month has an overall deficiency of about 35 percent and it may be dubbed as the ‘driest August’ since 1901,” the report mentioned. It is worth noting that sustaining growth would be tough, given the prospects of deficient rainfall.