India's GDP grows at 13.5% in Q1 FY23

India’s economy expanded 13.5% in the April-June period of the current financial year (2022-23), helped by good growth in the contact-based services sector, robust domestic demand and capital expenditure by the government, the two main pillars of the economy.

This is the fastest growth for the country’s economy in the past year despite global recessionary threats looming large. In the previous three quarters since July 2021, the economy had grown 8.4%, 5.4% and 4.1% respectively.

Economists, however, said going forward, the GDP is likely to face downside risk due to the tightening of monetary policy by the RBI and higher oil and commodity prices.

The economy had contracted 23.9% in the April-June quarter of 2020 during the first wave of the Covid-19 pandemic but grew 20.1% in the same quarter one year after in 2021.

The Reserve Bank of India had, however, predicted the first quarter economic growth rate to be 16.2%.

“The GDP print for April-June was largely in line with our expectations. It was led by a recovery in the services sector. The strong year-on-year growth partly also is led by a favourable base effect… Manufacturing has remained a disappointing print, while utilities have remained resilient since the pandemic normalised…, going ahead even as recovery in domestic economic activity is yet to be broad-based, global drags in the form of still-elevated prices, shrinking corporate profitability, demand curbing monetary policies and diminishing global growth weigh on the growth outlook, Madhavi Arora, lead economist of Emkay Global Financial Services, said.

The agriculture sector grew 4.5% in the April-June quarter compared to a 2.2% expansion last year in the same period, manufacturing grew 4.8%, it had accelerated 49% last year, the construction sector grew 16.8% vs over 71% last year, trade, hotels grew 25.7%.

On a quarterly basis, manufacturing witnessed good growth. It had contracted 0.2% in the last quarter of January-March (2021-22). Trade and hotels had grown only 5.3% in the previous quarter.

The mining sector however performed lower than the last quarter and grew by only 6.5%.

“The growth of 13.5% in India’s GDP is quite remarkable given that most of the major economies are staring at the looming threat of recession. Although the growth came to be a bit lower than RBI’s forecast of 16.2%… the growth has been driven by an increase in private consumption expenditure and gross fixed capital formation. The share of both these critical components has increased in comparison to the June quarter of the previous year…,” said Mohit Ralhan, CEO at TIW Capital Group.

The travel-related services may have benefited from pent-up demand related to corporate travel as well as leisure travel post the decline in the pandemic.

The upcoming festive season is likely to bode well for the pick-up in consumption demand.

“It is heartening to note the impressive double-digit GDP growth of 13.5% registered in the first quarter which was buttressed by the 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 the strengthening growth impulses going forward despite the challenging global backdrop,” said Director General of CII Chandrajit Banerjee.