Why India’s Jan-Mar GDP growth is likely to be higher than the previous quarter?

“The YoY performance of nine of the 14 high-frequency indicators of the services sector improved in Q4 FY2023 relative to Q3 FY2023, partly reflecting the robust demand for the contact-intensive segment, as well as the low base of Covid 3.0 for some sectors such as aviation,” it said. For Q4, however, ICRA estimates GDP growth to be 4.9 per cent due to uneven domestic economic activity.

The Reserve Bank of India (RBI) had estimated Q4 FY23 real GDP growth to be 5.1 per cent, while for the full year, NSO had projected a growth rate of 7 per cent in the advance estimates. With this growth rate, India is expected to retain the tag of the fastest-growing economy.

The Indian economy recorded GDP growth of 4.4 per cent in October-December (Q3), 6.3 per cent in July-September (Q2) and 13.2 per cent in April-June (Q1). GDP growth in January-March a year ago was 4.0 per cent. For 2023-24, RBI has projected GDP growth at 6.5 per cent with a Q1 growth rate pegged at 7.6 per cent.

“Amidst this global hullabaloo, India is expected to continue its showdown in pursuing a different pathway of zeroing in on drivers of growth, looking for a renewed surge in resilient manufacturing while supporting the services sector to embrace enhanced efficiency. Locally, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth while supply responses and cost conditions are poised to improve as inflationary pressure is easing.,” State Bank of India Research said in a note.

“The Union Budget 2023-24’s emphasis on capital expenditure is expected to crowd in private investment, strengthen job creation and demand, and raise our growth potential…SBI’s ANN (Artificial Neural Network) model, based on 30 high-frequency indicators from key sectors, and tuned/trained to project the GDP numbers forecast the quarterly GDP growth for the Q4FY23 at 5.5%. At this rate, India’s GDP growth for FY23 is likely at 7.1%,” it added.

An uptick in consumption and capital expenditure have supported the growth trajectory in the January-March quarter, experts said.

“Growth recovery remains on track with Q4FY23 GDP growth expected at 5.1%YoY v/s 4.4% in Q3. Recovery is likely to be led by the services sector with a pick-up in trade, hotel and transportation and government expenditure. Consumption recovery continues to be supported by urban areas, however, rural consumption is showing nascent signs of recovery as real rural wage growth turns positive. The drag from net imports is expected to be lower with a reduction in the trade deficit and a surge in services surplus. Capex cycle recovery, which has depended on central government expenditure, got some support from a pick-up in state government expenditure and improvement in capacity utilisation,” IDFC First Bank said in a report.

Even though merchandise exports are expected to be a drag on the GDP data, economists said domestic demand is supporting economic growth. “We forecast India’s Q1 23 GDP (Q4 FY23) expanded by 5.4% y/y, modestly faster than the 4.4% in Q4. On a sequential (nsa) basis also, we expect Q1 GDP to show faster growth than Q4, 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,” Barclays said.