GDP growth may more than halve to 6.3% in July-September, finds poll

Writing in the monthly State of the Economy article, published on November 18, economists from the RBI said their models estimated GDP growth for July-September at between 6.1 percent and 6.3 percent.

Overall, economists broadly see the incoming quarterly GDP data keeping the economy on track to meet the RBI's full-year growth forecast of 7 percent.

Services rebound

Much of the impetus to growth in July-September likely came from the services sector, which continues to recover from the malaise it found itself in following the imposition of restrictions to curb the spread of the coronavirus disease.

"…we expect services to be the largest contributor to headline growth of 6.4 percent, driven mainly by double-digit growth in the trade, hotels and transport sectors, as well as ongoing growth in the financial sector," said Rahul Bajoria, chief India economist for Barclays.

Economists were in agreement that the services sector likely grew by over 8 percent on a year-on-year basis in July-September. Kaushik Das, Deutsche Bank's Chief Economist for India, pegged service sector growth at 8.3 percent and ICRA Chief Economist Aditi Nayar estimated it would be higher at 9.4 percent.

"Travel-related services have recorded a healthy recovery since the onset of FY23, benefitting from pent-up demand related to corporate travel and increasing confidence for availing leisure services amid the decline in trajectory of Covid-19 infections," Nayar noted.

She added that nine of 16 high-frequency indicators related to the service sector – such as domestic airlines' passenger traffic, services sector exports, and total telephone subscribers, among others – posted double-digit growth rates in July-September.

Meanwhile, agricultural sector growth is expected to have slipped below 4 percent because of uneven rainfall.

Manufacturing, export drag

While growth in services was a plus, industry likely dragged down the growth rate last quarter, as evidenced by weaker corporate earnings and a "steep drop" in industrial production growth, according to Kanika Pasricha, an economist with Standard Chartered Bank.

Data released earlier this month showed India's industrial output grew by 3.1 percent in September, taking the average growth for July-September to 1.5 percent – sharply lower than 13 percent in April-June and 9.6 percent in July-September 2021.

Net exports, too, will bring down the growth rate, with India's import bill surging in recent months on the back of sharply higher global commodity prices.

"As per our estimate, net exports will subtract about 1.8 percent from growth, with real imports growth (12 percent) expected to exceed real exports growth (6.5 percent) by a big margin," Das of Deutsche Bank noted.

India had a trade deficit, combining merchandise and services trade, of $55 billion in July-September, nearly three time higher than the $19-billion deficit it had recorded in the same quarter of 2021.

With India's exports showing signs of weakening further – in October, merchandise exports contracted by 17 percent and fell below $30 billion, the first year-on-year decline since February 2021 – economists see the manufacturing sector becoming less of a growth driver in the coming quarters.