India’s economy is estimated to have grown in double digits in April-June, the first quarter of fiscal year 2022-23, with real gross domestic product (GDP) growth rates seen in the range of 13-16.2 per cent, as per estimates by economists. A base effect of 20.1 per cent growth in the corresponding period a year ago along with the moderation in the impact from the Russia-Ukraine war and a pickup in service sector activity is likely to have supported growth, they said.
Though economic growth is expected to increase, most economists have kept their estimates lower than the 16.2 per cent estimate of the Reserve Bank of India (RBI). Moreover, the Q1 GDP data — scheduled to be released on August 31 — will be closely eyed for monitoring the progress from the pre-Covid levels seen in 2019. The impact of a high base will be strongly evident this time.
“Our Q1FY23 forecast is 13.3%, this is mainly due to base effect. Even with expected 13.3% growth in Q1FY23, CAGR between Q1FY20 and Q1FY23 will be 1.2%. Even if it is a 15% growth, CAGR between Q1FY20 and Q1FY23 will be 1.7%,” said Devendra Kumar Pant, chief economist, India Ratings.
GDP growth rate had contracted 23.8 per cent during Q1FY21 after the onset of the pandemic. It then surged next year in Q1FY22 to 20.1 per cent on the low base, even as it contracted by 8.5 per cent from the pre-Covid level of Q1 2019-20.
“In ICRA’s assessment, there has been a shift in demand towards contact-intensive services from discretionary consumer goods for the mid-to-higher income groups. This, in conjunction with the emerging cautiousness in export demand, and the impact of high commodity prices on volumes as well as margins for the industrial sector, are likely to result in a relatively moderate industrial growth,” Aditi Nayar, chief economist, ICRA, said. The rating agency estimates GDP growth rate to be 13 per cent in Q1FY23.
Recent moderation in commodity prices are expected to ease inflationary as well as margin pressures and translate into improved demand for discretionary goods and higher value-added growth going ahead, according to economists.
“…private final consumption expenditure in real terms (which) had declined significantly by Rs 4.77 lakh crore in Q1FY21 owing to Covid-19 pandemic recovered by 46% in Q1FY22. It remains to be seen how the remaining 54% pent up demand recovered in Q1FY23. We believe it is likely to be more than 54%, indicating a strong recovery in consumer demand, specifically in services which has helped in the likely strong Q1FY23 numbers. This also accounts for 6.8% of the total GDP contribution in Q1FY23,” State Bank of India (SBI) said in its research report. According to SBI, Q1FY23 GDP growth is expected at 15.7 per cent, with a large possibility of an upward bias.
Newsletter | Click to get the day’s best explainers in your inbox
The strong growth rate in Q1 will provide room for more rate hikes by the RBI, DBS Group research said. Radhika Rao, senior economist, DBS, said, “India’s 2Q22 (Q1FY23) growth likely rose 16% YoY. Most lead indicators were up despite the Omicron wave, also helped by base effects … The impact of high commodity prices and heatwave will emerge as counterweights.”
Barclays India, in its report, said that while some supply headwinds were evident in the form of lingering intermediate-goods shortages and higher input costs, the domestic goods and services sectors are expected to show “impressive recoveries’’ in Q1. “The economy will likely show a full recovery from Covid in Q2 2022, with the services sector fully open, trade activity at a peak and domestic demand holding strong. We see modest upside risks to our GDP growth forecast of 7.0% y/y for FY 22-23. We forecast India’s economic growth accelerated to 16.0% YoY in April-June FY 2022-23,” Rahul Bajoria, India economist, Barclays, said.