Robust fourth quarter lifts India’s full-year GDP growth to 7.2%

Robust expansion in the final quarter of fiscal 2023 boosted India’s gross domestic product (GDP) growth for the full year to 7.2%, beating official government estimates, data from the National Statistical Office showed.

India’s economic output for Q4 FY23 exceeded expectations, growing by 6.1% when compared with an upwardly revised 4.5% in Q3 FY23. 

A surge in domestic demand amid a global slowdown and a broad-based improvement across sectors, especially in services, manufacturing, and construction, fueled growth during the March quarter.

“Growing travel demand, as reflected in robust passenger traffic and strong PMI-Services (Purchasing Managers’ Index) data, was instrumental in driving momentum in the services sector,” CARE analysts said in a report. “Also, a rebound in manufacturing and double-digit growth in construction significantly bolstered industrial growth.”

“The 2022-23 GDP growth figures underscore the resilience of the Indian economy amid global challenges. This robust performance along with overall optimism and compelling macroeconomic indicators, exemplify the promising trajectory of our economy and the tenacity of our people,” Prime Minister Narendra Modi said in a tweet on Wednesday.

Analysts, however, cautioned that multiple challenges lie ahead. High core inflation, a weak labor market, weather-related difficulties, and the gradual easing of pent-up demand may impact private consumption. Moreover, a potential global slowdown and financial uncertainties could put a damper on private investment, the analysts said.

But they also see a silver lining. 

The government’s continued capital spending could significantly support overall investment in the economy, offsetting potential negatives.

“The GFCF to GDP ratio bounced to a decadal high supported by the government’s continuous thrust on capital expenditure… the support from government capital spending will bode well for the overall investment in the economy,” CARE analysts said in their report.

In line with this, some experts project a moderate decline in the private consumption to GDP ratio in FY24, while others suggest a possibility of GDP growth easing to 6% in FY24, assuming a normal monsoon and continued government capital expenditure.

The agriculture sector showed resilience in the face of climate-related challenges. Despite an uneven monsoon and unexpected rainfall affecting crop yields, the sector grew 5.5% in the fourth quarter of FY23 and 4% for the entire year. 

Record-breaking food grain production, estimated to be 4.7% higher than last year, also boosted the sector. Experts warn, however, that the El Nino weather phenomenon could pose a significant risk to these positive trends.

Industrial growth also made a strong comeback in the previous quarter, notching up a 6.3% growth. This rebound was fueled primarily by a surge in manufacturing, which grew by 4.5% after a period of contraction in the previous two quarters. The construction sector also chipped in.

The services sector maintained its steady pace, posting a growth of 6.9% in Q4 FY23, largely driven by the trade, hotel, and transportation industries. Despite the positive trends, analysts forecast a slowdown going ahead as pent-up demand begins to cool and the effect of a low base fades.

Going ahead, experts expect economic growth to moderate to 6.1% in FY24 on a waning base effect, slowing external demand, and uncertain financial conditions. 

However, strong rural demand, driven by lower food inflation and higher rural wages, is expected to offer some respite. 

Investment demand is also expected to remain robust, but global uncertainties could dampen business optimism.