Even as India’s GDP grew 13.5 per cent in the June 2022 quarter, rating agency Crisil has said that while the economic recovery continues to gather pace, it faces multiple risks. It added that the global growth is projected to slow as central banks in major economies withdraw easy monetary policies to tackle high inflation and this would imply lower demand for India’s exports.
“While real GDP growth in the first quarter of fiscal 2023 was at 13.5 per cent, nominal growth reached a high of 26.7 per cent, thanks to GDP deflator reaching its highest level (since the first quarter of fiscal 2021, when the pandemic hit) of 11.6 per cent in the first quarter of fiscal 2023. To be sure, Consumer Price Index- and Wholesale Price Index-based inflation were at 7.3 per cent and 15.5 per cent, respectively, in the first quarter of fiscal 2023. High inflation acts as a hinderance for growth recovery and complicates policy management by the government,” Crisil said in its latest report for September 2022.
It added that the economy was first hit by the pandemic during the first quarter of fiscal 2021 and again affected in the second wave by the delta variant in the first quarter of fiscal 2022. In contrast, there was no pandemic-led disruption in the first quarter of this fiscal. Hence, the first quarter data of this 2023 continues to be statistically boosted by the favourable base effect. “Despite headwinds due to the Russia-Ukraine conflict, the growth momentum (in seasonally adjusted terms) improved sequentially during the quarter.”
On the demand side, Crisil also said private final consumption expenditure (PFCE) registered a strong growth of 25.9 per cent year-on-year in the first quarter of fiscal 2023. Healthy growth was partly driven by a low base. PFCE rose to Rs 22.08 lakh crore in the first quarter of this fiscal from the corresponding pre-pandemic level of Rs. 20.09 lakh crore in the first quarter of fiscal 2020.
“Goods demand also seems to be on the rise as reflected in high real import growth in the first quarter of this fiscal,” it said.
The rating agency also said investments also continued to recover. Real gross fixed capital formation (GFCF) – a proxy for fresh investments – grew 20.1 per cent on-year in the first quarter of fiscal 2023, with its share in GDP further improving to 34.7 per cent from 33.6 per cent in the previous quarter and 32.8 per cent in the first quarter of fiscal 2022.
“The improvement was largely led by central government capex (which rose 57 per cent on-year during April-June) and private investments in infrastructure-linked sectors such as steel and cement,” it said.
Crisil added that the rise in housing sales, which gets reflected as household investment in the national accounts, during the quarter also likely supported overall investments. State government capex, which declined 6.1 per cent during the first quarter of fiscal 2023, however, limited the upside to investment growth.
On the supply side, gross value added (GVA) grew 12.7 per cent in the first quarter of fiscal 2023, up from 3.9 per cent in the previous quarter, again largely a reflection of low base effect. That said, several sub-sectors performed well, registering better sequential momentum.
“While most of the international commodity prices have come off their peaks and a weaker global demand could imply the downward trajectory in prices would continue, they would continue to be high on-year. Moreover, firms would continue to pass on high input costs to end consumers domestically as pass through to the retail end remains incomplete,” it said.
The report also said uncertainty due to the Russia-Ukraine conflict could put some of the private capex plans on the back burner which could curtail overall investment growth.
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