India’s GDP grew at 13.5% in Q1FY23, fastest globally

Indian economy expanded slightly below the expectation during the April-June fiscal year FY23. Still, Gross Domestic Products (GDP) grew at 13.5 per cent, which makes the Indian economy the fastest growing globally.

Indian GDP stands at ₹36.85 lakh crore, which has surpassed the pre-Covid levels and is 3.83 per cent higher than pre-pandemic levels. GDP growth rate during the first quarter of the last fiscal (FY22) was 20.1 per cent, and 4.09 per cent in the previous quarter of the last fiscal. However, Finance Secretary T V Somnathan said that India is on course to achieve a GDP growth rate of 7-7.5 per cent during the current fiscal.

Data released by National Statistics Office showed that the growth, though lower than the Reserve Bank of India (RBI) estimate of 16.2 per cent, was fuelled by consumption and signalled a revival of domestic demand, particularly in the services sector. Pent-up demand is driving consumption as consumers are stepping out and spending after two years of pandemic restrictions. The services sector has seen a strong bounce back that will get a boost from the festival season next month.

The government’s capital expenditure during Q1FY23 stands at ₹1.75 lakh crore, equivalent to capital expenditure in 2013-14. Private Final Consumption Expenditure Q1FY23 stands at ₹22 lakh crore, which is an increase of 10 per cent compared to pre-pandemic levels of ₹20 lakh crore in FY 2019-20, indicative of a sustained increase in household consumption despite pandemic disruptions.

As per the OECD Quarterly GDP database of major economies, the GDP growth forecast for April-June, 2022 for other economies are China (0.4 per cent), Germany (1.7 per cent), the US (1.7 per cent), France (4.2 per cent), Italy (4.6 per cent) and Canada (4.8 per cent).

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But the slowing growth of the manufacturing sector at 4.8 per cent is an area of worry. Also, imports being higher than exports is a matter of concern. An uneven monsoon is likely to weigh upon Agri growth and rural demand.

Regarding the GDP numbers, Finance Secretary TV Somanathan said India’s GDP is now nearly 4 per cent higher than pre-pandemic levels. He emphasised that the government was on track to meeting the fiscal deficit target of 6.4 per cent of GDP for the current fiscal year ending March 31, 2023.

Economic Affairs Secretary Ajay Seth said gross fixed capital formation was up 34.7 per cent in April-June, the highest in 10 years. Also, GST tax collections, which are directly proportional to economic activity, are likely to be in the healthy range of Rs 1.42-1.43 lakh crore in August, he said.

Commenting on the latest number D.K Srivastava, Chief policy advisor with EY India, said that assuming that the RBI’s estimates of the remaining three quarters of the fiscal year at 6.2 per cent in 2Q, 4.1 per cent in 3Q, and 4 per cent in 4Q are realised, the annual GDP growth using NSO’s 1QFY23 estimate comes out to be 6.7 per cent. Compared to the pre-Covid GDP level of Rs 35.5 lakh crore in 1QFY20, real GDP growth is only 3.8 per cent. “This shows that while the Indian economy is now fully recovered from the Covid shock, restoring a normal growth of 6.5 to 7 per cent would require more time and policy support,” he said while adding that such support will ensure continued growth momentum in the trade, hotels, transport et. al. sector supplemented by augmenting government capital expenditure on the demand side.

“This should be feasible given high growth in central tax revenues which increased by nearly 25 per cent in the first four months of FY23. This was facilitated by the excess of nominal GDP growth at 26.7 per cent in 1QFY23 over the real GDP growth of 13.5 per cent,” he said.

In a statement, Chandrajit Banerjee, Director-General of CII, said that 13.5 per cent growth was buttressed by robust domestic demand even as headwinds on the external front gained strength. The rebound in contact-intensive services and a broad-based increase in the industrial sectors cushioned growth. From the demand side, healthy double-digit growth posted by both consumption and investment in the first quarter augurs well for strengthening the growth impulses going forward despite a challenging global backdrop. “Industry remains optimistic despite the prevailing global uncertainty, as domestic growth prospects are expected to remain strong on the back of the facilitative policies of the government,” he said.