FY23 GDP estimate: What's hot and what's not?

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The government on January 6 released its first advance estimate for India's GDP growth for the year ending March. At 7 percent, the economy's expected growth rate for FY23 is substantially lower than the favourable base effect-propelled 8.7 percent a year earlier.

However, it is higher than the forecast of 6.8 percent made by both the Reserve Bank of India and the International Monetary Fund. So, it's not all bad news but it's not all good news either.

1. Beating, missing forecasts

While growth this year is expected to beat the forecast by the RBI and the IMF, it is significantly lower than the government's initial expectation of 8-8.5 percent. However, that call was made when the FY23 budget was presented – about a month before Russia invaded Ukraine and threw the proverbial spanner in the global economy's recovery from the coronavirus pandemic.

The first advance estimate also implies a GDP growth rate of 4.5 percent for the second half of FY23. This would be higher than the RBI's forecast of 4.4 percent for the last quarter of 2022 and 4.2 percent for the first quarter of 2023.

2. Manufacturing, agriculture prospects

Dragging down overall growth was the manufacturing sector, with gross value added (GVA) seen growing a mere 1.6 percent this year.

But it is set to be a better second half for manufacturing, with growth in gross value added seen rising to 3 percent from just 0.1 percent in the six months ended September. Or at least that's what the numbers imply.

On the other hand, growth in the agricultural sector — seen slowing to 2.7 percent in the second half from 4.5 percent in the first half —seems understated.

"Given the brisk sowing (year-on-year growth of 4.5 percent up to December 30), improved fertiliser availability, and healthy reservoir levels, we expect rabi sowing in 2022-23 to exceed year-ago levels by 1-2 percent, which would contribute to agricultural GVA growth of 3-4 percent in H2 2022-23, while entailing a base-effect led easing in January-March," said Aditi Nayar, chief economist at ICRA.

3. Consumption decline

As per the data, private final consumption expenditure is set to post a 7.7 percent increase in FY23, down 20 basis points from the 7.9 percent growth in FY22. However, private consumption may contract 0.2 percent in the second half.

One basis point is a hundredth of a percentage point.

"While domestic demand has stayed relatively resilient so far, it would be tested next year by weakening industrial activity. It will feel the pressure from increasing transmission of interest rate hikes to consumers as well, and as the catch-up in contact-based services fades," CRISIL economists said in a note on January 6.

4. Export bullishness

While the government expects consumption to decline in the second half, it is bullish on India's exports.

According to data, outbound shipments are likely to rise 12 percent year-on-year in the second half. This seems optimistic, considering merchandise exports contracted by 12 percent in October and were up less than 1 percent in November. With external demand weakening, ICRA's Nayar said the second-half export growth implied by the latest GDP data is unlikely.

5. Revisions galore

These are still early days. As the statistics ministry itself pointed out, the numbers are likely to be revised for numerous reasons: improved data coverage, actual tax collected, expenditure on subsidies, revisions by source agencies, as well as an update of last year's GDP data.

"For the four years ended 2021-22, GDP estimates have been revised downwards on three occasions, with the average revision of around 80 basis points," noted Soumya Kanti Ghosh, State Bank of India's group chief economic adviser.

The first revised estimate for FY22 GDP is scheduled to be released on February 28 along with the GDP data for October-December, the second advance estimate for FY23, the second revised estimate for FY21, and the third revised estimate for FY20.