India posted a GDP growth of 6.1 percent for the March quarter (Q4FY23), better than estimates, as against 4.4 percent in the December quarter (Q3FY23) and 4.1 percent in the same quarter last year. The rise in GDP growth was driven by a pickup in manufacturing activity as well as a fall in food, crude oil, and raw material prices.
For FY23, the growth rate came in at 7.2 percent, higher than the Street estimate of 7 percent, but less than the 9.1 percent posted in FY22.
While this is a positive development for the Indian economy, it is important to note that the global economy is still slowing down which can impact India going ahead. In fact, many brokerages and economists have also revised India's GDP growth forecast downward, and the uncertainty regarding the monsoon remains a key concern.
Let's take a look at what they make of the March quarter GDP numbers:
Madhavi Arora, Lead Economist, Emkay Global Financial Services, stated that the better-than-expected GDP print for Q4FY23 was helped by the healthier capital formation and more importantly, net exports, which appear to be not a drag on growth, as usually seen in the cost given India is a net importer. However, weaker private consumption is still a worry albeit looks a bit difficult to fathom, when one compares robust value-added growth of consumption sectors like trade, hotels, transport, and communication services, she noted.
Arora also pointed out that another anomaly was a big discrepancy print in Q4GDP along with the big gap between GDP and GVA growth, with GVA growth outdoing GDP by a wide margin, depicting net indirect taxes (adjusted for subsidies) de-grew. That said, overall a healthy growth print augurs well and also validates the fact that India’s growth momentum is sustained well in FY23, added the expert.
Meanwhile, Ritika Chhabra- Quant Macro Strategist – Prabhudas Lilladher PMS, also highlighted that the Q4 growth number is a big surprise, adding that, on the production side, agriculture growth at 5.5 percent is much better than expected, despite the unseasonal rains seen in the Jan-March period. She also highlighted that the growth of the service has come on expected lines, supported by robust growth in trade, hotels and financial services. However, a mere 2.8 percent growth in private consumption expenditure indicates waning private sector demand, which is a concern, she warned.
Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities, said that the sharp upside to the GDP growth suggests the resilience of the Indian economy despite the global slowdown.
"Signs of investment picking up, as visible in the Gross Fixed Capital Formation (GFCF), reviving its share in the GDP to 35.3 percent in the Q4 from 31.7 percent in Q3, FY23. However, one has to remain watchful on the sustainability of the strength especially when much of the non-agricultural growth has been led by public investment while consumption remains tepid," she said.
Sheth also forecasted that inflation is expected to moderate in FY2024 as compared to FY2023 which is a positive for household budgets and consumption and may also have a positive impact on the profitability of the Indian corporate sector. However, the rise in home loan EMIs and its impact on the budgets of urban households and their consumption demand will reduce the disposable income in the hands of consumers, she fears. Other factors to be watched out for are a contraction in exports and its impact on employment, and the impact of a potential El Nino on agriculture, food prices and farm incomes that will drive the rural demand, added the expert.
Nikhil Gupta, Chief Economist, MOFSL Group, noted that India's growth continued to surprise positively for the third consecutive year in FY23, and this, however, will change in FY24, as he expects real growth to ease, led by consumption.
Mohit Ralhan, Chief Executive Officer, TIW Capital, highlighted that the March quarter growth has come out better than estimates, cementing India's position among the fastest-growing major economies of the world.
"The economy grew 6.1 percent YoY in Q4 FY 2023, much higher than 4.5 percent YoY in the previous quarter. The most critical was the growth in private investment activity. Gross fixed capital formation was up 8.9 percent, becoming the major growth driver while government expenditure took a back seat. Robust exports and lower imports also helped growth as the trade balance came in largely flat in the fourth quarter. While RBI expects growth to moderate to 6.5 percent YoY in FY 2024 owing to global factors, still, India will remain amongst the fastest growing major economy in the world and may surprise on the upside," he said.
Vivek Rathi-Director Research, Knight Frank India, pointed out that a 7.2 percent economic growth in FY23 indicates resilience in India’s economy despite multiple global headwinds during the year arising from economic and geo-political uncertainties. India’s economic growth was primarily driven by strong domestic macro-economic fundamentals, he added. Domestic investments as well have indicated some strength, as seen in the 9.6 percent growth in GCF. Growth in investments is crucial for the sustenance of long-term economic growth, he further stated.
Going forward, government initiatives such as high allocation to infrastructure spending, and policies to promote domestic manufacturing such as PLIs should be supportive of India’s long-term economic growth, noted the expert.
Nish Bhatt, Founder & CEO, Millwood Kane International, noted that the Q4, as well as FY23 growth rate, has been higher than most estimates and this growth has been despite interest rates at a two-decade high, the central bank withdrawing liquidity, and concerns around global growth.
While agri, mining, manufacturing, electricity, and construction component pushed up the overall growth rate, the slowdown in private consumption and public expenditure was a drag on the growth rate. Overall slowdown in imports and a trade surplus also played a role in the higher growth rate, he observed. This release of the data is timely as the central bank will be announcing its monetary policy in a week's time. This will encourage a status quo policy on the rate as well as the policy stance. Going forward, a good monsoon year, global growth, and the geopolitical situation will provide further cues on growth, he said.
