GDP growth for Q2 FY23 printed at 6.3 percent yoy (after 13.5 percent in Q1), just slight above analysts’ median estimate. However, growth by the Gross Value Added (GVA) measure tuned out to be substantially lower at 5.6 percent (vs 12.7 percent in Q1). Formally, GDP is equal to GVA plus indirect taxes minus subsidies. Hence, the GVA is a better measure of underlying economic activity, and aggregate demand.
In terms of economic activity by sectors, other than agriculture, the growth rates were lower than expected for almost all other segments. Agriculture growth continued at a higher-than-trend level at 4.6 percent. This is likely due to high output in animal husbandry, dairy, forestry, fisheries, etc. since growth in cereals, oilseeds, and pulses other staples had been negative or flat, due to the uneven rains.
Growth in the services sectors were mostly on expected lines, although slightly lower than our estimates. The outperformer was the ‘Trade, Hotels, Transport and Communications’ segment, which grew 14.7 percent yoy. Anecdotal signals suggested that travel in particular had resumed, particularly just prior to the festive season months. However, construction activity still remained muted, in part due to the rains and slower spending by state governments on capex as well as, reportedly, delayed payments.
Also on the lower side, activity in the ‘Public Administration, Defence and Other Services’ was also moderate (6.5 percent). Growth in the ‘Other Services’ component (which was 56 percent of this larger segment in FY18) is presumed to have been weaker than in public administration; this comprises all services provided by (largely smaller) enterprises in the multiple repair and professional services used by households and micro and small enterprises. We believe that the National Statistical Office (NSO) now uses data generated from GST payments to measure activity in these segments, and the presumption is that smaller enterprises are still constrained.