India’s GDP grows at 13.5% in Q1 2023, crosses pre-COVID levels

The growth, though lower than the Reserve Bank of India (RBI) estimate of 16.2 percent, was fuelled by consumption and signalled a revival of domestic demand, particularly in the services sector.
Representational Iamge
Representational IamgeFile/ GK

New Delhi: India remains the world's fastest-growing economy, with GDP expanding 13.5 percent in the April-June quarter, the quickest pace in a year, but rising interest costs and the looming threat of recession in major world economies could slow the momentum in coming quarters.

Gross Domestic Product (GDP) growth of 13.5 percent year-on-year compares to a 20.1 percent expansion a year back and 4.09 percent growth in the previous three months to March, official data released on Wednesday showed.

The growth, though lower than the Reserve Bank of India (RBI) estimate of 16.2 percent, was fuelled by consumption and signalled a revival of domestic demand, particularly in the services sector.

Pent-up demand is driving consumption as consumers, after two years of pandemic restrictions, are stepping out and spending. The services sector has seen a strong bounce back that will get a boost from the festival season next month.

But the slowing growth of the manufacturing sector at 4.8 percent is an area of worry. Also, imports being higher than exports is a matter of concern.

Additionally, an uneven monsoon is likely to weigh upon agriculture growth and rural demand.

The GDP print will, however, allow the Reserve Bank of India to focus on controlling inflation, which has stayed above the comfort zone of 6 percent for seven straight months.

The central bank has raised the benchmark policy rate by 140 basis points in three installments since May and has vowed to do more to bring inflation under control.

Besides tighter monetary conditions, Asia's third-largest economy faces headwinds from higher energy and commodity prices that are likely to weigh on consumer demand and companies' investment plans.

Also, consumer spending, which accounts for nearly 55 percent of economic activity, has been hit hard by soaring food and fuel prices.

The GDP growth in the first quarter of the current fiscal was higher than China's 0.4 percent growth in April-June.

Private investment during April-June increased 20.1 percent year-on-year, data show. Government spending rose 1.3 percent while private consumption was up 25.9 percent.

The GVA growth of 12.7 percent in Q1 FY2023, powered by a sharp base-effect-led 17.6 percent expansion in services and an 8.6 percent rise in the industry amid a surprisingly sanguine 4.5 percent growth in agriculture, belying the adverse impact of the heat wave on the rabi harvest of wheat.

Commenting on the GDP numbers, Finance Secretary TV Somanathan said India's GDP is now nearly 4 percent higher than pre-pandemic levels.

He emphasised that the government was on track to meeting the fiscal deficit target of 6.4 percent of GDP for the current fiscal year ending March 31, 2023.

Indian economy, he said, is on course for a more than 7 percent growth in the current fiscal.

Economic Affairs Secretary Ajay Seth said gross fixed capital formation was up 34.7 percent 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.

Aditi Nayar, Chief Economist, Icra, said GDP growth will certainly moderate in July-September, as the base effect normalises.

This was reflected in moderation in crore sector growth in July. The eight core infrastructure sectors showed growth slowing down to 4.5 percent in July -- the lowest in six months -- against 9.9 percent in the year-ago period.

The output of these infrastructure sectors expanded by 13.2 percent in June, 19.3 percent in May, 9.5 percent in April, 4.8 percent in March, 5.9 percent in February, and 4 percent in January.

The production growth of eight infrastructure sectors -- coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity -- was 11.5 percent in April-July this fiscal against 21.4 percent a year ago.

"We foresee modest downside risks to the NSO's initial estimate of 12.7 percent GVA growth in Q1 FY2023, on account of potential downward revisions in the agricultural performance from the current level of 4.5 percent," Nayar said.

Parallelly, official employment data showed the unemployment rate in urban areas dipping to 7.6 percent in April-June from 12.6 percent in the year-ago quarter.

Joblessness or unemployment rate is defined as the percentage of unemployed persons in the labour force.

Rumki Majumdar, Economist, Deloitte India, said the growth in India is in contrast to other major economies that are showing signs of a slowdown. "This should help boost global investors' confidence and attract investment in the economy."

"The services sector is seeing a strong bounce back after a prolonged uncertainty for two years. The boost in the hospitality sector is evidence of the fact that people are wanting to catch up on travel plans. The next quarter is likely to be equally strong because of the festivities," Majumdar said.

Real GDP or Gross Domestic Product (GDP) at Constant (2011-12) Prices in Q1 2022-23 is estimated to attain a level of Rs 36.85 lakh crore against Rs 32.46 lakh crore in Q1 2021-22, showing a growth of 13.5 percent compared to 20.1 percent a year ago, the National Statistical Office (NSO) statement said.

The real GDP in absolute terms stood at Rs 27.03 lakh crore in the April-June quarter of 2020. It had contracted by 23.8 percent in the first quarter of 2020-21 on account of lockdown restrictions to curb the spread of coronavirus.

As per the data, Gross Value Added (GVA) grew by 12.7 percent to Rs 34.41 lakh crore in April-June this year.

The GVA growth in the farm sector is 4.5 percent in the first quarter compared to 2.2 percent a year ago.

However, the GVA growth in the manufacturing sector decelerated sharply to 4.8 percent during the quarter from 49 percent in the year-ago period.

The NSO stated that the Nominal GDP or GDP at Current Prices in Q1 2022-23 is estimated at Rs 64.95 lakh crore against Rs 51.27 lakh crore in Q1 2021-22, showing a growth of 26.7 percent compared to 32.4 percent a year ago.

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