Real GDP or GDP at constant (2011-12) prices in Q2 2022-23 is estimated at Rs 38.17 lakh crore, as against Rs 35.89 lakh crore in Q2 2021-22, the National Statistics Office (NSO) said in an official release.
GDP for first half of FY23 (April-September) is estimated at Rs 75.02 lakh crore, it added.
In the previous quarter, Indian economy had shown fastest pace of growth in a year. However, the GDP numbers came in at 13.5% in Q1, which was below expectations and fueled fears of slowdown in growth.
The Q2 GDP figure assumes significance amid widespread speculations of a global recession as economies struggle to cope with after effects of Covid pandemic and also that of the uncertainties created by Russia-Ukraine war.
Amid such challenges, Indian economy is being looked upon as the one showing resilience amid persistent global headwinds.
Although business surveys indicated weakening economic activity in most major economies, where central banks are responding to soaring inflation with higher interest rates, business sentiment has remained relatively strong in India.
Last week, the finance ministry said a global slowdown might dampen the country’s export businesses outlook.
Experts believe that even if India witnesses slowdown in growth, it would be consistent with a much deeper global slowdown.
Quick Edit: Here’s what Q2 GDP numbers indicate
Here are the key takeaways from GDP release:
* Agriculture gains, manufacturing disappoints
The GVA growth in the farm sector is 4.6% in the second quarter compared to 3.2% a year ago.
Meanwhile, GVA in the manufacturing sector contracted 4.3% during the quarter from 5.6% growth during the year-ago period.
“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,” Madhavi Arora, lead economist at Emkay Global Financial Services told Reuters.
“This will put pressure on domestic growth, which still lacks the next lever of secular growth. We see downside risks increasing for our 7% growth forecast for FY23,” she added.
Madan Sabnavis, chief economist at Bank of Baroda said: “In case of manufacturing it has been clearly affected by low growth for the small business sector and fall in profits that has affected value added for the organized sector.”
* Service sector growth leads
GVA growth in the services sector — trade, hotel, transport, communication and services related to broadcasting — was 14.7% during the second quarter against 9.6%. Hence, service sector was the leading factor in India’s Q2 performance.
The electricity, gas, water supply and other utility services segment grew by 5.6% in the quarter compared to 8.5% a year ago.
“As expected, service activity was the major driver of growth, while the manufacturing GDP contracted,” Sakshi Gupta, principal economist at HDFC Bank told Reuters.
“Even as domestic growth drivers on the services side continue to remain robust, weakening global demand amid tightening financial conditions remains the key risk for growth outlook for India in the near term. We see India’s FY23 GDP growth at 7.1% and FY24 GDP growth at 6%,” Garima Kapoor, economist, Institutional Equities at Elara Capital said.
* Financial services, public administration grows
The NSO release further showed that financial, real estate and professional services grew by 7.2% in the first quarter over 6.1% earlier.
Meanwhile, public administration, defence and other services posted 6.5% growth against 19.4% in the second quarter of the last fiscal.
* Private consumption jumps
Aided by pent-up demand, particularly for services, private consumption grew 9.7% compared to a year ago, while capital formation, an indictor of investment, increased 10% annually.
“On the demand side, private consumption share to GDP fell — a signal towards the fragility of the consumption recovery seen in Q1 as the pent-up demand effect faded and elevated inflation hurt consumer spending,” Sakshi Gupta added.
* Fastest growing economy
Even though the pace of economic growth slowed in Q2, data shows that India still remains fastest growing major economy.
China registered an economic growth of 3.9 per cent in July-September 2022.
In its latest World Economic Outlook report, the International Monetary Fund (IMF) had slashed India’s economic growth forecast to 6.8% for 2022, refleting a weaker-than-expected outturn in Q2 and more subdued external demand.
Even the World Bank had downgraded India’s GDP projection to 6.5% for FY23. However, its chief economist of South Asia Hans Timmer had said that India has done relatively well compared to other countries in South Asia.
“India is doing better than the rest of the world. There are more buffers in India, especially large reserves at the central bank. That’s very helpful,” he had said.
How the quarter has been
During the September quarter, service sector witnessed pent-up post-Covid demand for hotels, restaurants and transport. However, retail inflation continued to be a major concern.
The consumer price index based retail inflation had surged to 5-month high of 7.41% in September as food and and fuel prices jumped.
As the RBI failed to ensure inflation remained at 4% with a margin of 2% on either side for three consecutive quarters, it has now sent a report to the government detailing the reasons for the failure and steps it is taking to bring CPI in the target range.
The inflation numbers have remained over RBI’s target range of 2%-6% since January this year.
To ease economic situation, the Centre stepped up capital expenditure, spending Rs 1.67 lakh crore ($20.45 billion) over the three months, more than 40% higher than a year ago.
Consumption has also improved since the quarter captures part of the three-month long festive season. This provides an indication of how resilient demand is in the face of elevated price gains and higher borrowing costs.
However, dwindling exports due to a slowdown in global activity and higher interest rates may hurt economic activity in subsequent quarters.
Tighter financial conditions globally are stoking recession fears and are hurting the nation’s external finances. India’s merchandise exports, that surged by almost 200% in April 2021, have now fizzled, posting an almost 17% contraction in October.
Uneven monsoon rains also posed challenges, driving crops prices higher and offsetting the benefits of declining commodity prices.
However, despite a slower pace of growth in Q2 GDP numbers, experts project India to grow by 7% in current financial year.
“Despite the deterioration, we expect India’s GDP growth to be close to 7% during the current and 6-6.5% in the next financial year. Tightening bias of monetary and fiscal consolidation would continue in India during the current year. Both policies are likely to turn neutral in the next year as the inflation and growth rate cools off,” Sujan Hajra, chief economist at Anand Rathi told Reuters.
“Services in the supply side and investments in the demand side would continue to be the main drivers of growth, while industry and consumption plus net exports will be the main drags,” he added.
While many economists foresee a slowing momentum in a nation known for its world-beating growth, Soumya Kanti Ghosh, chief economist at the State Bank of India is withholding judgment. “It may be better to look through the GDP headline numbers for a couple of quarters before arriving at a definitive conclusion about the growth trajectory.”
In its monetary policy announcement on September 30, the RBI had said real GDP growth for 2022-23 is projected at 7%, with July-September at 6.3%; October-December at 4.6%; and January-March at 4.6%, and risks broadly balanced.
For the first quarter of 2023-24, the RBI has projected the economic growth at 7.2%.
Meanwhile, the RBI raised its key policy interest rate to 5.9% from 4.0% in May and is widely expected to add another 60 basis points by the end of March.
The RBI, which has raised its benchmark rate by 190 basis point this year and brought it back to pre-pandemic levels, is expected to stay hawkish at the monetary policy review next week as inflation continues to be above 6%.