India's GDP Grows Faster Than Expected At 6.1% In Q4, 7.2% In FY23

India's recovery remained on track in the fourth quarter of FY23, with the economy performing better than expected and services in the lead.

The gross domestic product grew 6.1% in January-March, a step-up from 4.5% in the previous quarter, according to the latest estimates released by the government's statistical office on Wednesday. Gross value added, which strips out indirect tax and subsidies, is estimated to have grown 6.5% compared with 4.7% in the previous quarter.

For the full year, GDP is estimated to have grown 7.2%, according to the second advance estimates of national income versus 9.1% in FY22.

GDP was estimated to grow 5% in Q4, according to 44 economists polled by Bloomberg. GVA growth was pegged at 4.9%. For the full year, a Bloomberg poll of 45 economists estimated the GDP growth at 7%.

The GDP expansion in Q4 was appreciably higher than expected, while remaining uneven and "confirming the hopes of a sequential pickup in the pace of growth of economic activity to 6.1% from the bottom of 4.5% seen in Q3", according to Aditi Nayar, chief economist at ICRA.

Benefiting from the positive surprise for Q4, FY23 GDP growth of 7.2% exceeded the advance estimate of 7% by a healthy margin, she said. 

With the expansion—relative to the respective pre-Covid levels of FY19—improving to a robust 17.3% in Q4 from 15.3% in Q3, the underlying momentum of the Indian economy remains healthy, Nayar said.

But concern remains on the demand side amid modest private consumption growth in the fourth quarter, according to Suman Chowdhury, chief economist and head of research at Acuite Ratings. This seems slightly inconsistent with the robust agricultural growth but, he said, may also imply that rural demand may strengthen, provided the monsoon doesn’t throw any major surprises.

"For the current year, we continue to forecast a growth of 6.0% given the expected impact of the global uncertainties and the lagged impact of the interest rate hikes in the domestic economy," Chowdhury said.

Industry Trends

• Agriculture grew at 5.5% in Q4 as compared with 4.7% in Q3.

• Mining grew 4.3% as against 4.1% in the previous quarter.

• Manufacturing expanded 4.5% against a contraction of 1.4% over the preceding quarter.

• Electricity and other public utilities grew 6.9% versus 8.2% in Q3.

• Construction grew 10.4% in Q4 as compared with 8.3% in Q3.

• Trade, hotel, transport, and communication expanded 9.1% as compared with 9.6% over the previous quarter.

• Financial services sector grew 7.1% as against 5.7% in Q3.

• The public administration segment grew 3.1% as compared with 2% in Q3.

Expenditure Trends

• Private consumption, reflected in private final consumption expenditure, grew 2.8% in Q4 FY23.

• Investments, as reflected by gross fixed capital formation, grew 8.9%.

• Government final consumption expenditure grew 2.3%

Industry Trends

• Agriculture is estimated to grow 4% in FY23 as compared with 3.5% in FY22.

• Mining is estimated to expand by 4.6% as compared with 7.1%.

• Manufacturing growth is likely at 1.3% versus 11.1%.

• Electricity and other public utilities estimated to grow 9% as compared with 9.9% in FY22.

• Construction is estimated to grow 10% against 14.8% in FY22.

• Trade, hotel, transportation, and communication growth is estimated at 14% as compared with 13.8% in the previous fiscal.

• The financial services sector is estimated to grow 7.1% as compared with 4.7%.

• The public administration segment is forecast to grow 7.2% in FY23 as against 9.7% in FY22.

Expenditure Trends

• Private consumption grew 7.5% in Q4 FY23.

• Investments, as reflected by gross fixed capital formation, grew 11.4%.

• Government final consumption expenditure grew 0.1%.

The RBI is likely to take comfort from the strong growth outcome and be comfortable holding rates amid a moderating inflationary backdrop, said Rahul Bajoria, chief economist at Barclays.