The Indian economy grew 6.3 per cent in the July-September quarter this year as the output of the mining and manufacturing sectors recorded a contraction, reflecting the impact of high input prices, and the lower growth of small and medium enterprises, data released by the National Statistical Office (NSO) Wednesday showed.
The GDP data, although lower than expected, suggests the economy continues to recover post the adverse impact of the Covid-19 pandemic, with the agriculture and the services sectors posting a growth of over 4 per cent for the third straight quarter.
The real GDP had jumped 13.5 per cent in the April-June quarter this year and 8.4 per cent in July-September 2021.
Going forward, experts predict a slowdown in the third quarter due to global headwinds and slow exports growth, even as government officials said a rebound is expected in manufacturing as companies that were reluctant to add inventory before the festive season have now witnessed steady demand and are likely to show an improvement in output from hereon.
Among the eight key sectors, agriculture recorded a GVA (gross value added – which is GDP minus net product taxes) growth of 4.6 per cent in July-September as against 3.2 per cent in the year-ago period. Trade, hotels and transport services recorded a GVA growth of 14.7 per cent, while construction and financial services grew 6.6 per cent and 7.2 per cent, respectively.
The manufacturing sector contracted 4.3 per cent, and the mining sector contracted by 2.8 per cent.
The economy has picked momentum since the pandemic, but the contraction in the manufacturing sector put a question mark on demand going forward. Higher interest rates and no sharp pick-up in consumption in the backdrop of a slowing global economy will pose challenges in the second half of the current financial year.
The two bright spots: private final consumption expenditure – a measure of consumption of goods and services by individuals – grew 9.7 per cent year-on-year during July-September while gross fixed capital formation – a proxy for investment activity – grew 10.38 per cent. Government expenditure, however, contracted 4.35 per cent year-on-year primarily due to lower non-interest revenue expenditure, even as the government has backed capital expenditure. Discrepancies, which is the gap between GDP from expenditure and output side, rose to a 10-quarter high of Rs 1.11 lakh crore.
Chief Economic Adviser V Anantha Nageswaran said real GDP growth is on track to be 6.8-7 per cent, even as he outlined risks from global headwinds, tightening financial conditions which will have implications for the US dollar and global demand. Inflation is expected to ease on softening commodity prices, he said. India will have to work towards maintaining export competitiveness for which the private sector will have to play its part, he said.
“This data confirms that the economic recovery continues and most components of economic growth are stabilising at a moderate pace and we are on track to deliver 6.8-7 percent GDP growth for the current financial year. And we can look ahead as capacity utilisation rate picks up, as capital formation maintains its buoyancy, tax revenue growth indicates the vigour of economic activity, etc, we can look ahead to India building on its growth recovery further in 2023-24 as well,” Anantha Nageswaran said.
“Credit growth is all around. It is not just concentrated in one sector. Credit to MSMEs is particularly strong and that is gratifying… Clearly, there is a very strong momentum in credit growth and the demand from credit coming from all sectors points to continued economic momentum and growth continuing,” the CEA said.
Credit offtake by the industry, which was sluggish till recently, has surged by 13.6 per cent to Rs 32.90 lakh crore as of October 2022 on a year-on-year basis as against a growth of 3.3 per cent a year ago, as per RBI data.
The July-September GDP print has come to be at the same level of 6.3 per cent as projected by the Reserve Bank of India (RBI), amid agencies slashing their forecasts for India’s economic growth for the full year. Global rating agency Moody’s Investors Service had recently slashed India’s economic growth forecast for 2022 to 7 per cent, from 7.7 per cent estimated earlier, citing monetary policy tightening, higher inflation, uneven distribution of monsoon, and slowing global growth. While the World Bank has pared its growth estimate for India by 100 basis points to 6.5 per cent, IMF has trimmed it to 6.8 per cent from 7.4 per cent. Asian Development Bank too has cut projection to 7 per cent from 7.5 per cent earlier. The RBI expects economic growth to be 7 per cent in the current fiscal year.
Economists said though the base effect is waning with each subsequent quarter, global headwinds and continued geopolitical uncertainty continue to exert pressure points. “For mining, a high base effect combined with fall in output of oil and gas would be the factors driving it down. In the case of the manufacturing sector, it has been clearly affected by low growth for the SME sector (as per IIP) and fall in profits that has affected value added for the organised sector,” Madan Sabnavis, Chief Economist, Bank of Baroda said.
Some pointed out that estimates for the agricultural sector are seen as optimistic. “…GVA growth in agriculture, forestry and fishing has been estimated at above 4 per cent for the third consecutive quarter, which seems somewhat optimistic based on the decidedly mixed first advance estimates of the kharif crop, that were followed by unseasonal heavy rainfall towards the end of the monsoon season,” Aditi Nayar, Chief Economist, ICRA said.
The merchandise exports growth is also not expected to sustain in the coming quarters along with a moderation in government expenditure. “…the same has started becoming visible in the monthly data. GFCE contracted by 4.4% in 2QFY23 as governments have been showing retrain and have also rolled back some of the COVID 19 pandemic related expenditure,” Sunil Kumar Sinha, Principal Economist, India Ratings said.
Exports increased nearly 26 per cent in Q2 in FY23 over the same period of FY20, which is much less than the growth in imports at 45 per cent during this period, EY India said.
“Since much of the growth in consumption demand is driven by the wage growth of the household sector, a recovery in their wage growth is an imperative for a sustainable economic recovery. Favourable base effect is slowly waning, higher inflation, weak demand both internal and external is having its impact on GDP growth. Going forward, GDP growth in the second half is expected to slow down further, unless inflation is tamed and global demand recovers,” Sinha said.