GDP growth seen slowing to 7% in FY23

India’s economic growth is estimated to slow to 7% in the financial year 2022-23 from 8.7% recorded in the previous year, dragged down by a sharp drop in manufacturing and mining sectors, as per the National Statistical Office (NSO) data released on Friday.

The real gross domestic product (GDP) at constant (2011-12) prices is estimated to reach Rs 157.60 lakh crore in the financial year 2022-23, according to the first advance estimates of GDP. The provisional estimate of GDP for the year 2021-22 stood at Rs 147.36 lakh crore.

The NSO growth projection for the current fiscal is better than the Reserve Bank of India’s projection. Last month, the RBI cut India’s real GDP growth forecast to 6.8% from its earlier estimate of 7% citing the tightening of global financial conditions and geopolitical tensions in Europe.

Nominal GDP or GDP at Current Prices in the year 2022-23 is estimated at Rs 273.08 lakh crore, as against the provisional estimate of GDP for the year 2021-22 of Rs 236.65 lakh crore, released on May 31, 2022. The growth in nominal GDP during 2022-23 is estimated at 15.4% as compared to 19.5% in 2021-22, the NSO said.

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Private final consumption expenditure, a measure of demand, is estimated to grow by 7.7%t in the financial year ending March 2023 as compared to 7.9% in 2021-22.

Gross fixed capital formation, a measure of investment, is estimated to grow by 11.5% in 2022-23 as compared to a growth of 15.8% recorded in the previous year.

The manufacturing sector is set to be the biggest drag. The manufacturing output growth is estimated to slump to 1.6% in the current financial year from 9.9% recorded in 2021-22. The growth of mining & quarrying sector is estimated to slow down to 2.4% in the current financial year as against 11.5% recorded in the previous year.

However, agriculture sector growth is projected to accelerate to 3.5% in 2022-23 from 3% in the previous year.

Services sector growth is also estimated to accelerate. Financial, real estate and professional services are estimated to post a growth of 6.4% in fiscal 2022-23 as compared to 4.2% recorded in 2021-22. Trade, hotels, transport, communications & services related to broadcasting are estimated to grow at 13.7% in 2022-23, substantially higher than 11% growth recorded in the previous year. Reacting to the NSO data, Aditi Nayar, Chief Economist, ICRA Ltd, said the GDP estimate of 7% for 2022-23 factors 4.5% growth for the second half of the fiscal.

“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,” said Nayar.

The NSO’s growth projection for agriculture for H2 FY2023, at 2.7%, is slightly lower than our forecast for the same period. Given the brisk sowing (YoY growth of 4.5% upto Dec 30, 2022), improved fertiliser availability and healthy reservoir levels, we expect rabi sowing in FY2023 to exceed year-ago levels by 1.0-2.0%, which would contribute to agricultural GVA growth of 3-4% in H2 FY2023, while entailing a base-effect led easing in Q4, she added.