Services and agriculture are expected to develop at a 7% rate; weak demand and exports are a problem.
According to the first advance projections of national income provided by the National Statistical Office (NSO) Friday, India’s Gross Domestic Product (GDP), supported by increased growth in the agriculture and services sectors, is likely to increase by 7% in the financial year 2022–23. This is somewhat higher than the Reserve Bank of India’s (RBI) prediction of 6.8% for the current fiscal year but slower than the 8.7% GDP growth in 2021–2022
Gross Value Added, or GVA, which is GDP less net product taxes, is anticipated to expand by less than 7% in FY23, or 6.7%, compared to 8.1% in the previous fiscal year. In the second half of the current fiscal year, from October to March, the GDP prediction of 7% accounts for a 0.2% decline in private final consumption expenditure, a sign of weak demand and the effects of decreasing exports. Experts, however, consider the projection of 11.9% export growth for the period of October to March to be overly optimistic given the deteriorating global economy and diminishing export demand.
In advance of the next Union Budget for 2023–2024, this represents the first official government forecast for economic growth. Early in January, the first advance estimates—obtained by extrapolating data from seven months—are made public to assist officials in the Union Finance Ministry and other ministries in defining the general scope of the budget for the upcoming fiscal year. Then, at the end of February, the second advance estimate of GDP is made public.
According to information provided on Friday, India’s nominal GDP, which accounts for inflation, is predicted to expand by 15.4% in 2022–23, down from 19.5% in 2021–22. Agriculture is anticipated to expand by 3.5% in FY23, compared to the previous year’s growth rate of 3%, and manufacturing is anticipated to rise by 1.6% this fiscal year, compared to 9.9% the year before. In comparison to previous year, electricity generation is predicted to increase by 9%, while the building industry is predicted to grow by 9.1% instead of 11.5%.
The services industry is anticipated to show a significant recovery, particularly in the hospitality and finance sectors. Trade, lodging, and transportation services are anticipated to expand by 13.7% in 2022–2023 compared to the previous fiscal year’s 11.1% growth. Financial, real estate, and professional services are anticipated to rise by 6.4% in FY23, up from 4.2%. However, compared to the previous fiscal year’s 12.6% increase, it is anticipated that public administration, the military, and other services will rise at a lesser rate of 7.9% in FY23.
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expansion in a slowing planet
Private final consumption spending, a gauge of individual consumption of goods and services, is anticipated to expand at a slower rate in FY23 than it did in FY22—7.7% against 7.9%. The second half, from October to March, is predicted to decrease by 0.2%. Gross fixed capital formation, a proxy for investment activity, is projected to expand by 11.5% this fiscal year compared to 15.8% growth the previous year. On the heels of a capex push, government spending is predicted to increase by 3.1% this fiscal year compared to last fiscal’s 2.6% growth.
While private final consumption expenditure, gross fixed capital formation, and exports are anticipated to expand in a reassuringly strong manner on the demand side, government final consumption spending may only grow by a low single digit percentage. The government’s continued emphasis on capital expenditures is reflected in the GFCF’s positive rise of 11.5% year over year in FY23. This is even more encouraging given it came from a strong base in FY22, when GFCF increased by 15.8%. Reviving corporate capex in the private sector is essential for the Indian economy’s recovery and sustainable growth, according to Sunil Kumar Sinha, principal economist at India Ratings.
“We anticipate that strong domestic spending, despite its varied makeup, should assist to mitigate some of the negative effects of this period’s weak exports. In contrast to what we anticipated, the NSO anticipates a 0.2% YoY decline in private final consumption expenditures in the second half of FY2023. Additionally, it anticipates an increase in exports of 11.9% in the second half of FY2023, which we believe is unrealistic given the weakening external demand, according to Aditi Nayar, chief economist at ICRA.
Going forward, the projections are probably going to be revised. The 9.4% YoY growth forecasts for the trade, lodging, transportation, and communication services industry for the second half of FY2023 look overly optimistic. GFCE is expected to increase by 7.2% throughout this time period, while its growth estimates for the public administration and other services area are considerably lower, at just 1.7% YoY. In the upcoming data releases, “we anticipate some changes in either the H1 or the H2 FY2023 sectors numbers,” Nayar added.
