Economy sputtering: GDP, core sector growth slow down; fiscal deficit widens

Data released by the government on Wednesday (November 30) revealed a slowdown across various economic parameters. India’s economic growth slowed to 6.3 per cent in the September quarter of 2022-23 (FY23) compared to 13.5 per cent in the preceding three months mainly on account of a contraction in the output of the manufacturing and mining sectors, according to government data released on Wednesday.

Several analysts said they remain cautious about India’s growth prospects with the global demand risks slowing down and lagged impact of domestic monetary policy actions. 

Another set of government data showed the growth rate in the production of eight key sectors slowed down to a 20-month low of 0.1 per cent in October. Meanwhile, the Centre’s fiscal deficit in end-October touched 45.6 per cent of the full year Budget Estimate, against 36.3 per cent in the previous-year period.

Ahead of China

Slower GDP expansion notwithstanding, India continues to remain the fastest-growing major economy ahead of China, which registered an economic growth of 3.9 per cent in July-September 2022, the data revealed.

In FY22, the Indian economy grew 8.4 per cent in the July-September quarter. 

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“Real GDP or GDP at Constant (2011-12) Prices in Q2 2022-23 is estimated at ₹38.17 lakh-crore, as against inr 35.89 lakh crore in Q2 2021-22, showing a growth of 6.3 per cent as compared to 8.4 per cent in Q2 2021-22,” the National Statistical Office (NSO) said while releasing the data on estimates of Gross Domestic Product (GDP) for second quarter.

Talking to reporters after the release of NSO data, Chief Economic Advisor V Anantha Nageswaran said the Indian economy is on track to achieve a 6.8-7 per cent GDP growth in the current fiscal. He said the economic recovery momentum is continuing and the GDP is averaging the 2019-20 level.

Core sectors’ growth slows down

Another set of data released by the government showed the growth rate in the production of eight key sectors slowed down to a 20-month low of 0.1 per cent in October on account of contraction in the output of crude oil, natural gas, refinery products, and cement.

In October last year, these sectors expanded by 8.7 per cent. In September this year, the core sectors’ output growth stood at 7.8 per cent.

Fiscal deficit at 45.6%

Yet another macro economic data released by the finance ministry revealed that the Centre’s fiscal deficit in end-October touched 45.6 per cent of the full year Budget Estimate. In actual terms, the fiscal deficit —  the difference between expenditure and revenue — was ₹7,58,137 crore during the April-October period of FY23.

In the corresponding period last year, the deficit was 36.3 per cent of the Budget Estimates of 2021-22.

Analysts cautious

Analysts said they remain cautious about India’s growth prospects. GDP growth at 6.3 per cent in Q2 FY23 indicates that the drag in economic growth is emerging from the widening trade deficit due to the global slowdown, they observed.

 Suvodeep Rakshit, Chief Economist, Kotak Institutional Equities, said the GDP growth at 6.3 per cent in 2Q FY23 was in line with their expectation of 6.2 per cent. However, GVA (gross value added) growth was slightly lower than expected at 5.6 per cent. The internals indicate a substantially weak growth in the industrial sector led by manufacturing, while services sector growth has been steady given the recovery in contact-based services. 

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“We expect the same trend to continue into H2 (second half) FY23. We remain cautious about India’s growth prospects as the global demand risks slowing down and the lagging impact of domestic monetary policy actions. GDP growth in FY23 is likely to be in the range of 6.5-6.8 per cent,” Rakshit said.  

GVA is a measure of the economy’s total output and income. It calculates the rupee value of the number of goods and services generated in an economy after deducting the cost of inputs and raw materials used in their production. GVA presents a prospect of the condition of economic activity from the producers’ side or supply side; the GDP gives the picture from the consumers’ side or demand perspective.

Manufacturing slowdown

Madhavi Arora, Lead Economist, Emkay Global Financial Services, said  Q2 GDP growth expectedly slowed to 6.3 per cent and GVA at 5.6 per cent, led by growth in the services sector while manufacturing was a significant drag. 

Going ahead, even as recovery in domestic economic activity is yet to become broad-based, protracted global drags, shrinking corporate profitability, demand-curbing monetary policies, and diminishing global growth prospects weigh on output, Arora said.

“This will pressure domestic growth, which is yet to be broad based and still lacks the next level of secular growth. As a result, downside risks increase for our 7 per cent growth forecast for FY23,” Arora added.

Vivek Rathi, Director of Research, Knight Frank India, said the 6.3 per cent GDP growth witnessed in Q2 FY23 was primarily supported by resilience in private consumption despite increasing inflation and headwinds from global spillovers. Although inflation averaged significantly high at 7 per cent during the quarter, domestic consumption remained strong, as seen in 9.7 per cent of growth in private consumption, which accounts for nearly 60 per cent of the GDP. 

Rathi said industry-wise, the revival in the service sector, which includes financial services, real estate, trade, hotels, transport, communication etc., accounting for 59 per cent of the overall GVA, grew by 9.3 per cent and, thus, has supported growth in Q2 FY23. However, the drag in economic growth is emerging from the widening trade deficit due to the global slowdown.

In the coming months, sustained resistance in domestic consumption will continue to support India’s economy. However, as witnessed by significant growth in retail and personal loans, inflation and rising borrowing costs have not deterred consumption, Rathi pointed out.  

Favourable for real estate 

“The sustenance of strong domestic economic fundamentals is favourable for the real estate sector. Despite a faster rise in the borrowing cost (about 100 to 130 bps in 7 months), the residential sales have remained strong even post-festive season. We expect the momentum to continue, supported by strong macroeconomic fundamentals and positive consumer sentiment towards home ownership,” Rathi further said.

Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said the Q2 growth reflects the normalisation of the GDP growth rate due to the waning base effect. 

“At 6.3 per cent, India’s growth rate continues to be aided by strong domestic demand coupled with strengthening activity in the services sector. This indicates resilient progress during the quarter despite global headwinds. Government spending and private investments are expected to sustain the growth momentum,” Magazine said.  Data released by the government on Wednesday (November 30) revealed a slowdown across various economic parameters. India’s economic growth slowed to 6.3 per cent in the September quarter of 2022-23 (FY23) compared to 13.5 per cent in the preceding three months mainly on account of a contraction in the output of the manufacturing and mining sectors, according to government data released on Wednesday.