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Systematix Research Report
Behind the real gross domestic product and gross value added prints of 6.3% and 5.6% for Q2 FY23 are three major trends. The revival in household consumption has slowed and the post Covid fiscal impulse, including easing of net indirect taxes and government spending, has mostly reversed.
The combination of an elevated external deficit of close to 6%, above trend inflation, and reduced savings are indicative of actual demand, represented by three-year real GDP compound annual growth rate at 2.5%, growing higher than potential.
Given that private capex has lagged considerably, precluding near-term domestic supply responses, the external deficit may remain elevated, thereby increasing the dependence on global capital flows.
Going forward, as three of the four tyres of the growth car will likely flatten due the intensifying fiscal drag, contraction in exports, and eroding profits impacting corporate spending, the burden will shift on the fourth wheel, viz the household sector, which is inherently feeble due to a series of past shocks.
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