India Q1 FY23 GDP Grew 13.5%; GVA By 12.7%

GDP growth for Q1 FY23 was lower than economist estimates.

<div class="paragraphs"><p>(Source: Vishwanath Nair/BQ Prime) </p></div>
(Source: Vishwanath Nair/BQ Prime)

The Indian economy grew by the fastest pace in four quarters in the April-June quarter this year, benefiting from the base effect. However, the GDP growth numbers were below estimates.

GDP growth in Q1 FY23 was at 13.5% year-on-year, compared to 4.1% for Q4 FY22, according to data released by the Ministry of Statistics and Programme Implementation.

Gross value added, which strips out the impact of subsidies and indirect taxes, grew 12.7% year-on-year in the first quarter, compared with 3.9% for Q4 FY22.

A Bloomberg poll of economists had estimated first quarter GDP growth at 15.5% and gross value added at 14%.

Nominal GDP, at current prices in Q1 FY22, is estimated at Rs 64.95 lakh crore, as against Rs 66.15 lakh crore in the previous quarter.

Though the quarterly GDP growth numbers of Q1 FY23 are influenced by the base effect, yet it indicates that the recovery is on course despite the global headwinds, high commodity prices—especially oil—and weakening of the rupee, according to a note by Sunil Kumar Sinha and Paras Jasrai, economists at India Ratings and Research.

Aditi Nayar, chief economist at ICRA, said that GDP growth will moderate in Q2 FY23, as the base effect normalises. Additionally, an uneven monsoon is likely to weigh upon agricultural GVA growth and rural demand, she said in a note.

"However, a robust demand for services and some easing in the commodity price-inflicted pain for producers should support a year-on-year GDP growth of 6.5%-7.0% in the ongoing quarter, and 7.2% for the year as a whole," Nayar said.

Sectoral Trends

  • The agriculture sector grew 4.5% in the first quarter annually, compared to 4.1% in the fourth quarter of the previous financial year.

  • The mining sector grew 6.5% in the first quarter, compared to 6.7% in in the previous three months.

  • The manufacturing sector grew by 4.8% in the first quarter, compared to a contraction of 0.2% in the fourth quarter.

  • The construction sector grew 16.8% versus a growth of 2% in the preceding quarter.

  • Trade, hotel, transport and communication sector grew 25.7% in the first quarter, compared with 5.3% in the fourth quarter.

  • The financial services sector grew 9.2%, compared with 4.3% over the same duration.

  • Public administration, defence and other services grew by 26.3%, compared to 13.8% in Q4 FY22.

Within industry, the growth of mining, manufacturing and electricity mildly trailed projections, suggesting a larger role of commodity prices in squeezing margins, Nayar said.

Relative to the pre-Covid-19 levels, trade, hotels, and transport stood out as the only sub-sectors reporting a contraction in Q1 FY23, in line with the robust but incomplete recovery in contact-intensive sectors, she said.

The output of the employment-intensive segments, such as construction and trade, hotels, transport and communication is still only 101.2% and 84.5%, respectively, of the pre-Covid-19 level, Sinha and Jasrai said.

Expenditure Trends

  • Government consumption expenditure showed marginal growth.

  • Private consumption, reflected in private final consumption expenditure, rose 25.9% in the first quarter on an annual basis, compared to a rise of 1.7% in the fourth quarter.

  • Investments, as reflected by gross fixed capital formation, rose 20.1%, compared to a rise of 5.1% in the fourth quarter.

  • Government final consumption expenditure rose 1.3%, compared to a rise of 4.8% year-on-year in the fourth quarter.

The size of all demand-side drivers of GDP in Q1 FY23 is now bigger than their respective sizes in Q1 FY20, and suggests that they have now managed to overcome the drag on the economy caused by the pandemic and related disruptions, Sinha and Jasrai said.

Gross fixed capital formation in Q1 FY23 shows a growth of just 6.7% over Q1 FY20. Similarly, private final consumption expenditure and government final consumption expenditure registered a growth of 9.9% and 9.6%, respectively, over Q1 FY20, they said.