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Q1 GDP: Experts say India may post 15% growth on base effect, economic recovery

Employment, consumption, a rejuvenated services sector are among the growth drivers. But a global slowdown could take a toll on India

August 31, 2022 / 09:58 AM IST
Representative image

Representative image

India's GDP is expected to have grown by 15 percent in the first quarter of FY23, according to the median of estimates of 15 economists polled by Moneycontrol.

This would be the second-highest growth rate India would have ever clocked, although comparable quarterly GDP data is available going back only till 2012.

However, this double-digit rate of growth is primarily due to a favourable base effect.

The statistics ministry is scheduled to release GDP data for April-June at 5:30 p.m. on August 31.

"The significantly high base of FY22 and the low base of FY21 has made forecasting difficult," noted Soumya Kanti Ghosh, State Bank of India's group chief economic adviser.

Economists' estimates for GDP growth ranged from 12.4 percent to 17.8 percent.
Deutsche Bank14%
Sunidhi Securities14%
Standard Chartered Bank14%
HDFC Bank14.1%
Societe Generale15%
QuantEco Research15%
IDFC First Bank15.5%
Kotak Mahindra Bank15.5%
State Bank of India15.7%
DBS Bank16%
IndusInd Bank16.1%

The Indian economy had expanded by a record 20.1 percent in April-June 2021 on a year-on-year basis due to an extremely strong base effect as the GDP had contracted by 21.4 percent in April-June 2020. The favourable base more than made up for the hit to economic activity from restrictions imposed during the second wave of Covid.

However, Ghosh sees plenty of evidence for strong growth in April-June, and "not merely because of a low base." According to him, 89 percent of 41 high-frequency leading indicators showed an acceleration in April-June compared to 75 percent in the year-ago quarter.

"Broad-based improvement in vaccination rates and relaxation of lockdowns benefited urban consumption, particularly on the back of a resumption in service sector activity, including contact intensive entertainment venues, hospitality, domestic / international travel, restaurants, theatres etc," said Radhika Rao, India economist at DBS Bank.

Sectoral breakdown

According to Rao, the services sector likely saw robust expansion in the last quarter, with Standard Chartered Bank estimating 22 percent growth and ICRA 17-19 percent.

Strong growth is also expected outside of services.

"Even the manufacturing and power sectors are likely to witness double-digit growth, as strong exports, and an unusually hot summer, drove demand," said Rahul Bajoria, chief India economist for Barclays.

Bajoria expects the manufacturing sector's Gross Value Added (GVA) to have grown by 12 percent in April-June after having contracted by 0.2 percent in the previous quarter.

But the same unusually hot summer that boosted electricity demand hampered the agriculture sector, with economists in agreement that the heatwave had an adverse impact on farm output.

In January-March, the GVA of agriculture, forestry, and fishing increased by 4.1 percent on a year-on-year basis. In April-June, this is expected to decline to anywhere between 1-3 percent.

Net exports will be another drag on the GDP, with April-June seeing India post a merchandise and services trade deficit of $45.2 billion – eight times the deficit for the year-ago period.

On the expenditure side, consumer demand may have seen a strong recovery in April-June, although the divide between rural and urban spends remains.

"With strong formal sector employment growth, consumption remains supported by urban areas. Rural recovery remains relatively slower with subdued wage growth and delayed kharif sowing," noted Gaura Sen Gupta, India economist with IDFC First Bank.

Beyond April-June

The expected GDP growth of 15 percent is more than a full percentage point lower than the Reserve Bank of India's (RBI) forecast of 16.2 percent.

For FY23 as a whole, the central bank has projected a growth rate of 7.2 percent, with GDP growth seen at 6.2 percent, 4.1 percent, and 4.0 percent in the final three quarters of the current financial year.

However, a global growth slowdown could take a toll on India.

"We expect a synchronised global growth downturn and tighter global financial conditions to weigh on exports and investment performance, while consumption is likely to face drags from elevated levels of inflation," Nomura, which had the lowest estimate for April-June GDP growth at 12.4 percent, said.

Nomura sees India's GDP growing 7 percent in FY23 and 5.5 percent in FY24.
Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. He tweets at @SiddharthUbiWan. Contact:
first published: Aug 26, 2022 04:03 pm
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