India's FY23 Q2 GDP Grows 6.3%; GVA Expands 5.6%

The Indian economy grew at a slower pace in the July-September quarter as the base normalised.

GDP grew 6.3% year-on-year in the second quarter of FY23, compared with 13.5% for Q1, according to data released by the Ministry of Statistics and Programme Implementation on Wednesday.

Gross value added, which strips out the impact of subsidies and indirect taxes, grew 5.6% year-on-year in Q2, compared with 12.7% for Q1.

A Bloomberg poll of 46 economists had estimated second-quarter GDP growth at 6.2%. Gross value added was estimated to grow at 5.9%.

Nominal GDP, at current prices in Q2 FY22, is estimated at Rs 65.31 lakh crore, as against Rs 64.95 lakh crore in the previous quarter.

While the Q2 FY23 GDP growth of 6.3% came in similar to estimates, GVA rise of 5.6% trailed forecast by a wide margin, led by an unexpected contraction in manufacturing that seems to reflect the impact of high input prices on margins in certain sectors, said Aditi Nayar, chief economist at ICRA.

"While a normalising base expectedly flattened the YoY GDP growth in Q2 FY23 relative to the previous quarter, growth relative to the pre-Covid period improved appreciably, which we believe is a better gauge of the underlying growth momentum in this period," Nayar said.

Rahul Bajoria, chief economist at Barclays, said that the economy expanded on a sequential basis, showing signs of returning to normal, in terms of sector growth rates and their share of GDP. "We see signs of strength in services, but expect manufacturing and exports to slow in coming months," he said.

Sectoral Trends

• The agriculture sector grew 4.6% in the second quarter annually, compared with 4.5% in the first.

• The mining sector contracted 2.8%, compared to a growth of 6.5% in the previous three months.

• The manufacturing sector contracted 4.3%, compared with a growth of 4.8% in the first quarter.

• The construction sector grew 6.6% versus an expansion of 16.8% in the preceding quarter.

• Trade, hotel, transport and communication sector grew 14.7% in the second quarter, compared with 25.7% in the first.

• The financial services sector grew 7.2%, compared with 9.2% in the prior quarter.

• Public administration, defence and other services grew 6.5%, compared with 26.3% in Q1 FY23.

While the GVA from manufacturing has been below expectations, the agriculture sector has been somewhat of a surprise despite the inconsistency in rainfall, said Suman Chowdhury, chief analytical officer at Acuité Ratings & Research.

GVA growth in agriculture, forestry and fishing has been estimated at above 4% for the third consecutive quarter, which seems somewhat optimistic based on the decidedly mixed first advance estimates of the kharif crop, that were followed by unseasonally heavy rainfall towards the end of the monsoon season, Nayar said.

Services stood out as the clear driver of growth in Q2 FY23, accounting for 5.3% of the 5.6% GVA growth in this period, with even the pandemic-scarred trade, hotels, transport, and communication sub-segment surpassing its Q2 FY20 performance, she said.

Expenditure Trends

• Government consumption expenditure contracted 4.4%.

• Private consumption, reflected in private final consumption expenditure, rose 9.7% in the second quarter on an annual basis.

• Investments, as reflected by gross fixed capital formation, rose 10.4%.

Gross capital formation reflects the increased government orientation towards capital expenditure, Chowdhury said. The reduction in government consumption expenditure is possibly due to tighter revenue spending, he said.

"While we continue to peg GDP growth at 7% given the reasonably healthy domestic demand, downside risks to the forecast have increased due to the intense global headwinds," Chowdhury said.