ICRA NSE 0.49 % suggested that India’s GDP growth in the first quarter of the current fiscal may have grown in double digits at 13% owing to a low base and robust recovery in the contact-intensive sectors following the widening vaccination coverage.

15.2% surge in economic output, faster than 4.1% growth rate in the preceding quarter: Reuters poll

A Reuters poll of 51 economists suggested a 15.2% surge in economic output, faster than 4.1% growth rate in the preceding quarter. If realised, this will also be the fastest pace of growth in a year. The data is due for release post market hours tomorrow.

GDP Q1 FY23: India likely to register double-digit growth

India is likely to post double-digit economic growth for the April to June quarter, banking on favorable base effect and consumption boost following easing of Covid-led restrictions. The progress in the economy is seen despite global spillovers, elevated inflation and some slackening of external demand as geopolitical developments take their toll on world trade.

Yield on govt securities fall ahead of GDP announcement

The yield on government securities in the secondary market fell on Tuesday on value buying ahead of the scheduled release of April-June economic growth data on Wednesday. At 1.40 pm., the yield on 10-year benchmark 6.54 per cent-2032 bond yield was trading at 7.2046 per cent as compared to 7.2534 per cent closed on the previous trading session. The GDP data for April-June is scheduled to be released on Wednesday. Indian markets will remain shut on Wednesday on account of Ganesh Chaturthi.

A broad-based pickup was observed across consumption, services industry and investment. We expect the private final consumption expenditure, a measure of demand and gross fixed capital formation, a measure of investment, to grow by 16% and 14%, respectively. However, net exports will be a drag due to high average crude prices during Q1

– Ritika Chhabra, economist and quant analyst at Prabhudas Lilladher

GDP Q1 FY23: Bloomberg’s forecast

Gross domestic product estimated to grow 15.5% in the April-June 2022 quarter, according to 34 economists polled by Bloomberg.

Impact of excise duty cuts on fuel

In one of the most significant moves by the Modi-government, excise duty on petrol and diesel was reduced by Rs 8 a litre and Rs 6 a litre, respectively. Import duty on coal was lifted from the previous 2.5%. Slashing of crude and edible oil prices pushed consumption demand. As a consequence, the GDP numbers might surge for April-June quarter.

Vaccination rate’s impact on GDP

There is no doubt that India has emerged as one of the countries with highest vaccination rates which stands close to 68 percent. With the government announcing vaccines for children and free booster doses for adults, the population of fully vaccinated people is expected to increase further. This, in turn, will give a boost to the consumption pattern pushing the GDP upwards.

The direction of global markets will be the dominant factor for this week while on the domestic front, India’s GDP number and August auto sales numbers will be important factors. Apart from this, the market will also have an eye on the movement of crude oil prices, the dollar index, and the US bond yields

– Santosh Meena, Head of Research, Swastika Investmart Ltd

Rebound in consumption

India’s economy is forecast to have expanded by an annual 15.2% in the April-June quarter, thanks to a rebound in consumption as pandemic restrictions eased, a Reuters poll found. That expected strong double-digit growth rate in Asia’s third-largest economy, based on the median forecast from an Aug. 22-26 Reuters poll of 51 economists, would be up sharply from a reported 4.1% growth rate in the preceding quarter.

Reuters Poll on GDP

Reuters recent poll forecast India’s GDP growth at 15.2% in Q1 FY23, 6.2% in Q2 FY23, 4.5% in Q3 FY23, 4.2% in Q4 FY23 (vs 15.1%, 6.2%, 4.7% and 4.1% in July poll)

DBS Group’s Radhika Rao on GDP numbers

Favourable base effect after the onset of Delta coronavirus variant last year will additionally lift the year-on-year GDP numbers, Radhika Rao, senior economist at DBS Group Research, wrote in the note. “Resumption in service sector activity added to the momentum, besides manufacturing,” Reuters quoted Rao as saying. The research house’s fiscal year 2022-2023 GDP growth forecast of 7% year-on-year will see India emerge the fastest-growing economy in Asia this year, she pointed out.

Finance Minister Nirmala Sitharaman on GDP

Highlighting the recovery of the economy and flow of investment post-COVID pandemic, Union Finance Minister Nirmala Sitharaman said that India’s Gross Domestic Product (GDP) is expected to grow at 7.4 per cent in the financial year 2022-23 and will continue at the same level in the next fiscal. Speaking at an event, Sitharaman said, “India is still the fastest growing economy. We are definitely at the range of 7.4 per cent (GDP). The level will continue even the next year.”

Economic indicators giving mixed signals

India’s business and consumption activity showed conflicting signs of recovery in July as elevated inflation, rising borrowing costs and fears of a global slowdown weighed on Asia’s third-largest economy. Demand for Indian goods and services softened, a cross-section of high-frequency indicators compiled by Bloomberg News showed. The needle on a dial measuring so-called animal spirits, however, remained steady at 5 last month as the gauge uses a three-month weighted average to smooth out volatility in the single month readings.

Investment growth recovery

Businesses ramping up capacity as domestic demand recovers indicates early signs of a turnaround. Most likely, the recovery in investment from the pre-pandemic levels is going to support the growth.

RBI’s forecast for Q1 FY23 GDP

The Reserve Bank of India (RBI) has forecast 16.2% GDP growth for the first quarter. In its August Monetary Policy meeting, the RBI had retained its projection for GDP at 7.2% for the current fiscal.

Geopolitical tensions to affect growth

The rising geopolitical tensions amid war between Russia and Ukraine impacted the economy severely. The war caused supply-chain disruptions creating a blockage in the manufacturing industry. Ukraine is a supplier of about 30% of the grains in the world. The disruption caused by war affected commodity prices pushing inflation upwards. Chip shortage woes contributed to the rising inflation as well.

Impact of ban on international trade

United Arab Emirates (UAE) had in June ordered a four-month suspension in exports and re-exports of wheat and wheat flour originating from India. Meanwhile, India had banned wheat exports in a surprise move on May 14 this year. The sudden ban on wheat exports resulted in complete collapse of the export pipeline which ultimately affected growth. Ban on palm oil exports by Indonesia added to the woes. This is likely to impact the GDP growth for Q1 FY23.

Low-base effect likely to push GDP upwards

A low base might aid GDP growth for this quarter. A low base means the base year or month with which the current figure is being compared. GDP for Q1 FY22 stood at 20.1 percent.

Pent-up demand to support growth

Easing of Covid-19 restrictions led to an increase in consumer demands which may have given a boost to the private consumption sector constituting 57 percent of GDP. Contact-intensive sectors like restaurants, hotels, travel and tourism too have seen a growth in the past few months.

ICRA’s Nayar on growth prospects

“The anticipated double-digit GDP expansion in Q1 FY2023 benefits from the low base of the second wave of Covid-19 in India in Q1 FY2022 as well as the robust recovery in the contact-intensive sectors following the widening vaccination coverage. 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 was quoted saying in a release.

THTCS to drive expansion

Overall, ICRA expects the growth in GVA of trade, hotels, transport, communication and services related to broadcasting (THTCS) to record a base-effect driven expansion of 40-45 per cent in Q1 FY2023 (+5.3 per cent in Q4 FY2022), while trailing the pre-Covid level of Q1 FY2020 by a muted 2.5 per cent.

Four quarter high?

India’s GDP growth in the first quarter of the current fiscal is expected to grow in double digits at 13% owing to a low base and robust recovery in the contact-intensive sectors following the widening vaccination coverage, as per an ICRA report.

SBI predictions for Q1 GDP

“As per our (SBI) ‘Nowcasting Model’, the forecasted GDP growth for Q1 FY23 would be 15.7 pr cent, with an upward bias,” the report added. GDP Growth as per SBI NSE -1.71 % composite leading indicator (CLI), which includes parameters from almost all the sectors based on monthly data, shows early signals of turning-points in the economic activity.

Beating the heat

An intense heatwave in major regions across India during the summer season limited economic activity. Despite this, most of the high-frequency economic indicators showed improvement, especially in the services sector activity. There were also significant improvements in the domestic supply delivery time, backlogs and decline in truck freights, which was reflected in the fall of index of supply chain pressures for India.

The road ahead

Pain points for growth

Key drivers of growth

GDP estimates for April-June (growth in %)

Momentum

Resumption of activity in India’s dominant services sector, following the lifting of pandemic curbs, and a record jump in exports added to the momentum.

Mixed signals

For now, indicators are giving mixed signals on activity going forward. While global demand is softening, government spending and a possible pick up in private investment is stoking hopes of a revival.

Rupee falls 7p to 79.91 on strong dollar

The rupee on Monday depreciated 7 paise to close at 79.91 against the American dollar due to risk aversion in the global markets and a strong greenback overseas after hawkish comments from the US Federal Reserve.
A massive sell-off in the domestic equities and rising global crude prices also weakened sentiment in the forex market, experts said. However, suspected RBI intervention restricted the rupee’s fall, they added.

IMF says growth pace can be sustained

The International Monetary Fund sees Asia’s third-largest economy sustaining its world-beating growth tag as the lender estimates a growth of 7.4% this year and 6.1% thereafter. A fast pace of expansion is crucial for India to attract investors and create jobs for its growing population.

Curbing inflation

Experts say RBI will retain its focus on containing inflation, with growth looking promising and 140 bps of rate increases already passed on. There might be a further 50 bps of rate hikes in the next two Monetary Policy Committee meets.