India Q4 GDP Preview: Economists Peg Growth At 5.1% As Recovery Continues
Economic rebound remained on track in the fourth quarter of FY23, led by growth in services.
India's economic recovery remained on track in the fourth quarter of FY23, led by growth in services.
The gross domestic product is estimated to grow 5.1% in January–March 2023, a modest step up from 4.4% in the previous quarter, according to 26 economists polled by Bloomberg. Gross value added is expected to rise 4.9%, compared to 4.6% in Q3.
For the full fiscal year, GDP is set to expand 7%, according to a poll of 24 economists.
Recovery is likely to be led by the services sector with a pick-up in trade, hotels, transportation, and government expenditure, said a note by IDFC First Bank. While consumption continues to be supported by urban areas, rural demand is showing signs of a nascent rebound as real rural wage growth turns positive, it said.
The drag from net imports is expected to be lower with a reduction in the trade deficit and a surge in the services surplus, IDFC First Bank said. Capex cycle recovery, driven by central government expenditure, got some support from a pick-up in state spending and an improvement in capacity utilisation, it said.
According to a note by Goldman Sachs, private sector investment demand has been muted. But sequential growth in government expenditure is expected to come in stronger than expected, given spending trends in January and February, it said.
Goldman Sachs forecasts GDP to grow 4.9% in Q4.
Key Components Of GDP
Higher acreage, early sowing, healthy reservoir levels, and improved availability of fertilisers augured well for the rabi output in 2023, according to a research note by ICRA. However, unseasonal rains are likely to have dampened the yield of some crops.
ICRA estimates agri-GVA growth at 3.5% year-on-year for Q4, a step down from the 3.7% recorded in Q3.
Teresa John, economist at Nirmal Bang Institutional Equities, forecasts growth in the sector at 2.7% year-over-year in Q4, taking into account the high base alongside the impact of unseasonal rains.
ICRA estimates industrial GVA growth rose to about 3.6% in Q4 FY23 from 2.4% in Q3, aided by improvements in manufacturing and mining and quarrying. The manufacturing GVA is likely to have reverted to a growth rate of about 1-2% in Q4 after contracting for the previous two quarters, benefiting from higher volumes as well as lower margin pressure owing to the downtrend in prices of many commodities, Aditi Nayar, chief economist at ICRA, explained.
Notwithstanding a sequential moderation, electricity, gas, water supply, and other utilities, as well as construction, are expected to display a healthy expansion of about 7% each in Q4, Nayar estimated.
Weaker But Resilient Growth Ahead
India is forecast to continue to remain one of the fastest-growing economies globally at 6% in FY24, supported by resilient investment prospects, Fitch Ratings said in a note. Still, headwinds from elevated inflation, high interest rates, and subdued global demand, along with fading pandemic-induced pent-up demand, will slow growth from the FY23 estimate of 7% before rebounding to 6.7% by FY25, it said.
The RBI expects real GDP growth to moderate from 7% in FY23 to 6.5% in FY24. GDP growth in the first quarter of FY24 is expected to be driven by private consumption, supported by a revival in rural demand that is underway on the back of encouraging developments in both the kharif marketing season of 2022–23 and the rabi marketing season of 2023–24, the sustained buoyancy in services, especially contact-intensive sectors, and moderating inflationary pressures, the central bank said in its monthly bulletin for May 2023.
Investment activity is also expected to improve, drawing strength from the thrust on capital expenditure in public spending and moderation in commodity prices, the RBI said. If service exports maintain their recent high profile, the drag from net external demand should moderate through April–June 2023. Domestic services sector activity will continue to be led by the rebound in contact-intensive services and the resilience in construction activity, it said.
