By K R Sudhaman
There is jubilation in Indian government as uptick in last quarter lifted India's GDP growth in fiscal 2023 to 7.2 per cent belying expectations of less than 7 per cent growth this year. After slowing GDP growth of 4.5 per cent in third quarter, there were fears that fourth quarter performance will not be that good and growth will slide to 4.2 per cent in fourth quarter on the back of slowing world economy and monetary tightening by RBI due to stubborn domestic inflation.
India's real GDP growth rose sharply to 6.1% on-year in the fourth quarter of fiscal 2023 compared with 4.5% in the third quarter. The growth surpassed the number factored in the National Statistics Office's (NSO) second advance estimate of February. Annual growth for fiscal 2023 was revised up to 7.2% (provisional estimate) from 7.0% in the second advance estimate.
According to CRISIL, Fourth-quarter growth was primarily driven by investment and net exports, with the latter less of a drag given rising exports and slowing imports. Fixed investment turned in the strongest growth on the demand side while private consumption growth was more subdued on-quarter. Manufacturing and agriculture growth improved on-quarter on the supply side even as services growth remained strong, albeit slowing a tad relative to the previous quarter. The provisional estimate of 7.2% comes on top of 9.1% expansion in fiscal 2022. This suggests strong growth momentum, which was propelled by domestic demand through the year, both from investment and private consumption. Investment's share rose to an 11-year high of 34% of GDP, while that of private consumption rose to an 18-year high of 58.5% in fiscal 2023.
However, nominal GDP growth tapered to 10.4% on-year in the fourth quarter compared with 11.4% in the third. This was primarily due to the price-effect, since the GDP deflator slowed to 4.1% from 6.6%. The deflator is significantly influenced by inflation based on wholesale price index (WPI), which halved to 3.3% from 6.6%. The gap between nominal and real growth is likely to reduce further, with inflation expected falling this fiscal.
While the growth momentum was strong in fiscal 2023, the current 2023-24 fiscal will feel the lagged impact of rate hikes of central banks over the past 15 months, Crisil emphasised and said external demand is likely to be a bigger hindrance to growth with western advanced economies staring at a sharp slowdown in the coming quarters, whipping up a headwind for exports. While domestic demand will also weaken, hit by rising lending rates, softening inflation and government capex will offer support. Monsoon and El Nino risks remain a swing factor. Overall, we expect India's real GDP growth to slow to 6.0% in this fiscal 2024 from 7.2% in the previous fiscal.
This detailed analysis indicate that India is not yet out of the woods despite the higher than expected growth in fourth quarter. The current year growth expected at 6 per cent is nothing to cheer India is yet nowhere near getting back to high growth trajectory of 8 per cent plus annually. Economists are still wary of India growing to its potential. Construction and infrastructure have done well in the fourth quarter but there is still joblessness in the economy and demand is muted. Car sales have gone up but two-wheeler sales is still not back to the desired level. Even in car sales, the low end models pickup is muted. That means the middle class and lower middle class are still not comfortable in spending besides rural distress. These have to be fixed.
GDP growth at 7.2% for fiscal 2023 indicates the economy has done better than expected. Importantly, this growth comes on a higher base – due to upward revision of fiscal 2022 data.
According to CRISIL chief economist Dharmakiriti Joshi, “We expect the economy to slow to 6% this fiscal due to spill-over to exports from a slowing world and some impact of interest rate hikes on interest sensitive segments.”
Even at 6%, India will be the fastest growing G-20 economy this fiscal, but that is not enough to take advantage of the India's demographic dividend that government boosts off.
As for agriculture output and prices, the eyes are riveted on monsoon, Joshi said indicating we have to keep our fingers crossed over early pick up rural demand. Higher than expected growth in 2022-23 is no doubt a pleasant surprise, but analysts warned of an uneven terrain ahead. Government and private capital spending have improved but private consumption is still sluggish. There was decline in both exports and imports, which clouds economic outlook. Private consumption accounted for nearly 60 per cent of the economy and its growth was merely 2.8 per cent in the fourth quarter of 2022-23 and this is not encouraging.
Surprisingly high growth in the fourth quarter has brought about some optimism to India's growth story but there are still risks. In such a situation there is need to vigorously pursue structural reforms instead of indulging in only chest-thumping. More importantly jobless growth needed to be tackled to ensure private consumption picked up to the desired level. (IPA Service)
