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Aided by good performance of the agriculture and services sectors, India’s Gross Domestic Product (GDP) is expected to grow 7 per cent in financial year 2022-23, supported by higher growth in agriculture and services sectors, according to the first advance estimates of national income released by the National Statistical Office (NSO) Friday. This is slower than the 8.7 per cent GDP growth in 2021-22, but slightly higher than the Reserve Bank of India (RBI) forecast of 6.8 per cent for the current financial year.
Gross Value Added or GVA — which is GDP minus net product taxes — is seen growing at sub-7 per cent – 6.7 per cent in FY23 as against 8.1 per cent last fiscal. The GDP projection of 7 per cent factors in a 0.2 per cent contraction in private final consumption expenditure during October-March, the second half of the current financial year, indicating weak demand and the impact of slowing exports. However, the assumption of 11.9 per cent exports growth for October-March is seen as optimistic by experts, in the backdrop of a slowing global economy and declining export demand.
This marks the first official government estimate for economic growth ahead of the upcoming Union Budget for 2023-24. The first advance estimates, obtained by extrapolation of seven months’ data, are released early in January to help officers in the Union Finance Ministry and other departments frame the broad contours of the budget for the next financial year. The second advance estimate of GDP is then released on February-end.
As per the data released Friday, India’s nominal GDP, which factors in the inflation rate, is set to grow by 15.4 per cent in 2022-23, down from 19.5 per cent in 2021-22. Among sectors, agriculture is seen growing at 3.5 per cent in FY23 as against 3 per cent growth in the previous year, while the manufacturing sector is seen growing 1.6 per cent as against 9.9 per cent last fiscal. Electricity generation is estimated to grow 9 per cent as against 7.5 per cent last year, while the construction sector is seen growing at 9.1 per cent as against 11.5 per cent last fiscal.
The services sector, especially hospitality and financial services, are expected to post a strong rebound. Trade, hotels, and transport services are projected to post a growth of 13.7 per cent in 2022-23 from 11.1 per cent growth last fiscal. Financial, real estate and professional services are seen growing at 6.4 per cent in FY23 from 4.2 per cent. However, public administration, defence and other services are seen posting a slower growth rate of 7.9 per cent in FY23 as against 12.6 per cent growth last fiscal.
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Growth in a slowing world
Private final consumption expenditure – a measure of consumption of goods and services by individuals – is seen growing at a slower pace of 7.7 per cent in FY23 as against 7.9 per cent a year ago. For the second half, October-March, it is seen contracting 0.2 per cent. Gross fixed capital formation – a proxy for investment activity – is seen growing at 11.5 per cent as against 15.8 per cent growth last fiscal. Government expenditure is seen growing 3.1 per cent as against 2.6 per cent last fiscal coming on the back of a capex push.
“On the demand side, while private final consumption expenditure, gross fixed capital formation and exports are expected to witness reasonably good growth, government final consumption expenditure may record a low single digit growth… A healthy growth of 11.5 per cent year-on-year growth in GFCF in FY23 reflects the sustained focus of the government on capex. This is more heartening because it has come on a high base of FY22 where by GFCF had grown 15.8 per cent… for a sustainable growth and recovery of the Indian economy revival of private corporate sector capex is a must,” Sunil Kumar Sinha, Principal Economist, India Ratings said.
“We believe that buoyant albeit mixed domestic consumption should help to stave off some of the pain arising from weak exports during this period. Contrary to our expectations, the NSO expects private final consumption expenditure to contract by 0.2% YoY in H2 FY2023. Further, it expects exports to rise by 11.9% in H2 FY2023, which we believe is unlikely, given the flagging external demand,” Aditi Nayar, Chief Economist, ICRA said.
The projections are likely to undergo revisions going ahead. “…growth projections for the trade, hotels, transport and communication services segment for H2 FY2023 seem quite optimistic, at 9.4% YoY. In contrast, its growth projections for the public administration and other services segment are on the lower side, at just 1.7% YoY, while being much lower than its 7.2% growth forecasted for GFCE during this period… we expect there to be some revisions in either the H1 or the H2 FY2023 sectoral numbers, in the subsequent data releases,” Nayar said.
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