- India’s GDP growth accelerated sharply to 6.1% YoY in Q4 FY23 from 4.5% YoY in Q3, performing stronger than market expectations (Refinitiv: 5.0%).
- The upturn in headline growth was primarily driven by pent-up demand for services, healthy run-rate for investment growth, improvement in net exports, and robust capex-orientation in government spending.
- Sequentially, GDP expanded by a robust 8.4% QoQ, better than the pre pandemic average (over a 5-year period) of 6.3% observed in Q4.
- However, challenges for economic growth are expected to intensify in FY24 on the back of waning pent-up demand, persistence of tightness in global financial conditions, sluggish global demand, likelihood of El Nino related climate risks, and lingering geopolitical uncertainty.
- As such, we maintain our GDP growth forecast at 6.0% in FY24.
India’s GDP growth accelerated sharply to 6.1% YoY in
Q4 FY23 from 4.5% YoY in Q3, performing stronger than market expectations
(Refinitiv: 5.0%). The upturn in headline growth was
primarily driven by pent-up demand for services, healthy run-rate for
investment growth, improvement in net exports, and robust capex-oriented
Sequentially, GDP expanded by a robust 8.4% QoQ,
better than the pre pandemic average (over a 5-year period) of 6.3% observed in
Q4. This sequential expansion is in sync with the signals derived from most
high frequency indicators in Q4 FY23, such as PMI manufacturing, GST revenue
collections, E-way bills, tractor sales among others – many of which were at
expanded at the fastest pace in 10-quarters by 20.8%QoQ in Q4 FY23, significantly
better than the pre-pandemic seasonal average (over a 9-year period) of 7.3%
observed in Q4. This is on account of the continued thrust on public capex by
consumption momentum retreated to negative territory after a gap of two
quarters to contract by 3.2% QoQ in Q4 FY23, but was broadly in line with the
pre-pandemic seasonal average (over a 9-year period) of -3.1% observed in Q4. On
annualized basis, private consumption improved marginally to 2.8% in Q4 FY23
from 2.1% in Q3 FY23. While performance of high frequency proxy indicators had underscored
an improving consumer sentiment/demand, there appears to have been a stronger
than anticipated offsetting by financial tightening and subdued recovery in rural
consumption on account of elevated farm input inflation and erratic rainfall.
consumption growth returned to positive territory after a gap of two quarters
to expand by 2.3% YoY in Q4 FY23 from a contraction of 0.6% YoY in Q3 FY23.
This reflects the improving pace of disbursal of revenue expenditure along with
a persistent focus on capex.
export ratio, based on current prices, improved to -1.6% of GDP in Q4 FY23 from
-4.0% in Q3 FY23 on account of relatively faster pace of moderation in demand for
merchandise imports during Q4 amidst strong performance by services exports.
- On the
supply side, annualized growth in headline GVA rose to 6.5% YoY in Q4 FY23 from
4.7% in Q3. The improvement was broad-based across agriculture, services, and
industry. Despite higher than normal temperature in Feb-23 followed by erratic
rainfall in Mar-23, agriculture and allied sector growth rose to a 12-quarter
high of 5.5% YoY in Q4 FY24 compared to 4.7% in Q3. It is likely that an upward revision in
government’s third advance estimate of foodgrain production in FY23 drove this.
GVA accelerated by 6.3% YoY in Q4 FY23 from 2.3% YoY in Q3. Expansion was
driven by Construction, Mining and Utilities sector.
Industry, manufacturing growth returned to positive territory after a gap of
two quarters to expand by 4.5% YoY in Q4 FY23 from a contraction of 1.4% in Q3,
likely supported by easing global commodity prices.
- In case
of services, growth improved to 6.9% YoY in Q4 FY23 compared to 6.1% in Q3 FY23.
The improvement was primarily driven by the sectors of - Financial services,
real estate etc. and Public administration services, while growth in Trade,
hospitality and communication sector witnessed a marginal moderation.
The robust pace of economic
activity in Q4 FY23 has meant an upward revision to FY23 GDP growth, which is
now estimated at 7.2%, higher than NSO’s previous estimate of 7.0%.
Acceleration in growth momentum is comforting despite global banking sector
turmoil that came to the fore in the quarter, along with continued tightening
of financial conditions, slowdown in global demand and geopolitical uncertainties.
Government capex is continuing as a strong pillar of support, pushing
investment ratio to 31.7% of GDP in Q4 FY23, the highest level in almost
Having said so, challenges for
economic growth are expected to intensify in FY24.
- In its
latest update to the World Economic Outlook report, the IMF predicts World GDP
growth to moderate to 2.8% and 3.0% in 2023 and 2024 respectively from 3.4% in
consumption, which is still performing relatively better, is likely to show some
fatigue as pent-up demand wanes and transmission of cumulative past rate hikes
by RBI’s is completed. The pace of annualized growth of credit to consumer
durables has moderated over the last 2-3 quarters.
addition, downside risks emanate from possibility of El Nino weighing on
Southwest monsoon performance which could dampen rural demand and agriculture
Having said so, the expected recovery
in rural demand, persistent support from Government capex along with nascent
signs of private capex taking shape are to be seen as growth anchors. Overall, we
maintain GDP growth forecast at 6.0% in FY24.
Says Suman Chowdhury, Chief
Economist and Head-Research, Acuité
Ratings & Research “As against our estimate of Q4GDP of 5.0%, the
actual print indeed gave a pleasant surprise, coming at 6.1% YoY and
significantly higher than the 4.4% YoY in Q3FY23. Overall, the GDP growth for
FY23 stands at 7.2% as compared to the 7.0% reported in the advance estimates
What’s pleasantly surprising is the
GVA growth of 6.5% in the last quarter and 7.0% for FY23. The agriculture
sector has seen a higher growth of 4.0% than the 3.5% seen last year, despite
the risks seen from untimely rainfall. The manufacturing sector was expected to
record a relatively low GVA, and it printed 1.3% YoY, given the global
headwinds. But the actual buoyancy in the growth has been driven by the
services sector – construction sector at 10.0% and 14.0% YoY for trade and
transport services; exports of services
have also seen a significant uptick in FY23. As expected, gross fixed capital
formation grew by 8.9% in Q4 with all the push on public sector capital
expenditure and a partial kickoff in the private sector space as well.
The concern, however, remains on
the demand side as private consumption has grown by 2.8% YoY only in the fourth
quarter. This seems slightly inconsistent with the robust agricultural growth,
but this may also imply that the rural demand may strengthen going forward
provided the monsoon doesn’t throw any major surprises.
For the current year, we continue
to forecast a growth of 6.0% given the expected impact of the global
uncertainties and the lagged impact of the interest rate hikes in the domestic
economy. Given the inflation numbers along with the weaker consumption data, we
expect the MPC to stick to the ‘pause’ in rate action in the next 2-3
Table 1: India’s GVA
and GDP: Sectoral break-up
Chart 1: Government capex is continuing as a strong pillar of
support, pushing investment ratio to 31.7% of GDP in Q4 FY23, the highest level
in almost 9-years