Q4 growth seen under 5%, FY23 figure sub-7%

The economy is seen to have grown at a subdued pace of 5% or lower in the fourth quarter of 2022-23, with the full-fiscal GDP growth just a tad short of the official estimate of 7%. In fact, most private agencies expect the economy to have grown at less than 5% in the quarter ending March 31, 2023.

However, growth may have been at a marginally faster pace in the fourth quarter of the fiscal compared to the 4.4% expansion in the third quarter, which was pulled down by weak manufacturing growth, falling private consumption and a fading away of a favourable base effect.

The National Statistical Office (NSO) is expected to release the quarterly GDP estimates for the quarter January-March, 2023 (Q4 2022-23) and Provisional Annual Estimates for the year 2022-23 on May 31.

In the fourth quarter of FY23, the services sector is seen to have been the largest contributor to growth as contact-intensive sectors such as retail, hospitality and travel and tourism registered robust activity levels. The manufacturing sector is seen to have continued lagging behind due to external headwinds.

Rating agency ICRA on Wednesday projected the year-on-year (YoY) growth of the GDP in Q4 FY2023 at 4.9%, a modest step-up from the 4.4% recorded in Q3 FY2023. Aditi Nayar, chief economist, head-research and outreach, ICRA Ltd, said, economic activity in Q4 FY2023 remained uneven, with domestic demand for services outpacing that for goods and surprisingly robust exports of services amidst a contraction in merchandise items.

ICRA said the growth in gross value addition in services sector is likely to have risen mildly to about 6.4% in Q4 of FY23 from 6.2% in Q3 of FY23. Industrial GVA year on year growth likely improved to about 3.6% in Q4 FY23 from 2.4% in Q3 FY23, aided by an improvement in manufacturing, and mining and quarrying while agri GVA growth is likely to have marginally slowed to 3.5% for Q4 FY23 from 3.7% in the previous quarter.

High frequency data for the fourth quarter of the fiscal presented a mixed picture with collections from the mop-up from the goods and services tax remaining robust, which experts attributed partly to higher inflation. However, industrial output remained volatile and slowed to 1.1% in March from 5.8% growth in February. One of the key monitorables would be private final consumption expenditure, which had already slowed down to just 2.1% growth year on year in Q3 FY23.

India Ratings and Research has pegged GDP growth at 4.1% in the fourth quarter of the fiscal due to trends indicating weak consumption. “We believe that consumption is still very sluggish and there was only some amount of fixed capital formation,” said Devendra Kumar Pant, Chief Economist and Head (Public Finance), India Ratings. The agency expects growth in GVA in agri and industry at 3% each and in services sector at 5.1% in the fourth quarter of the fiscal.

Rahul Bajoria, Head of EM Asia (ex-China) Economics Research, Barclays, was however, more optimistic. The agency has forecast India’s Q4 FY23 GDP growth at 5.4%. “On a sequential basis also, we expect Q1 GDP (Q4 FY23 ) to show faster growth than Q4 (Q3 FY23), with domestic demand still resilient. Some drag to growth is expected from weaker manufacturing and slowing exports given external headwinds, but we think robust domestic demand is anchoring economic growth,” Bajoria said in a note.

The 5.4% headline GDP growth estimate would suggest slight upside risks to the agency’s FY23 growth forecast of 7%, he further said, adding that for FY24, GDP growth is likely to be softer at 6.3%.

In the first half of the FY23, the economy grew at a much faster pace with Q1 growth at 13.2% and Q2 growth at 6.3% due to a resumption in economic activities and a favourable base effect. In the second advance estimates of national income, the NSO had retained the FY23 growth at 7%.

“We expect annualised Q4 GDP and GVA growth to be 5.3% and 5.1% respectively, translating into a 7.0% expansion for FY23. In Q4, a robust growth in indirect taxes with a possible downside in food subsidy bill (with the cessation of free foodgrain program in Dec-22) could drive GDP growth above GVA. This GDP print will reinforce the steady momentum in economic activity, led by services as seen in multitude of high frequency indicators despite heightened global risks” said Yuvika Singhal, Economist, QuantEco Research.

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