FY23 GDP to be better than expected
On 07th January, the MOSPI released its first advance estimate (AE) for the full-year FY23 GDP. The full-year GDP for FY23 is expected to grow at 7%. This is lower than last year but much higher than the street estimates of full-year GDP growth. Also, this is almost at par with what the RBI had estimated as full-year GDP growth. It must be remembered that this is just the first advance estimate (AE) of GDP for FY23. The second advance estimate (AE) will be released on 28-Feb along with the Dec-22 quarter GDP data. The actual full-year GDP for FY23 will be released on 30th May 2023. But the early indications are that GDP growth for the fiscal year FY23 should be better than originally expected, despite headwinds.
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GDP and GVA estimates for FY23
What do we understand by GVA? Now, GVA (gross value added) is the GDP adjusted for the impact of indirect taxes and subsidies. This is considered to be a more realistic reflection of growth. For FY23, GVA is projected to grow 6.7% YoY to Rs145.19 trillion. This is lower than the FY22 GVA growth of 8.1%. What about GDP? For FY23, the GDP is estimated to grow 7.0% YoY at Rs157.60 trillion. This is again lower than the 8.4% GDP growth for FY22. This is commendable since it comes in the midst of headwinds like central bank hawkishness, high input costs, thinning operating margins etc. In the background of its conditions, the GDP growth estimate of 7.0% is largely a statement of the resilience of the Indian economy.
Factors triggering GDP growth in FY23
Here are some key triggers of GDP growth for the full year as per the first AE.
a) Private final consumption is expected to grow 7.7% from Rs83.78 trillion to Rs90.22 trillion YoY in FY23. That is a good sign that consumption is driving growth.
b) Government consumption expenditure has grown just 3.1% at Rs16.26 trillion in FY23 since the government has reduced its role as a growth driver.
c) The good news is the 11.5% growth in Gross Fixed Capital Formation at Rs53.36 trillion in FY23, making a case for the revival of the capital cycle amidst overflowing order books.
d) As per advance estimates for FY23, merchandise exports are slated to rise 12.4% to Rs35.70 trillion while the imports are slated to rise 20.9% to Rs46.89 trillion.
The good news is that private consumption is picking up and capital formation has got a boost. However, rising imports remain a worry.
Services to drive FY23 growth as manufacturing stagnates
| Industry Segment | FY23 GVA (Rs Trillion) | FY23 over FY22 |
| Agriculture, Forestry | Rs21.83 trillion | 3.5% |
| Mining, Quarrying | Rs3.36 trillion | 2.4% |
| Manufacturing | Rs25.09 trillion | 1.6% |
| Power, Gas, Water | Rs3.40 trillion | 9.0% |
| Construction | Rs11.71 trillion | 9.1% |
| Trade, Hotels, Transport | Rs27.12 trillion | 13.7% |
| Financial, Realty | Rs32.84 trillion | 6.4% |
| Public admin, Defence | Rs19.84 trillion | 7.9% |
Data Source: MOSPI
What are the takeaways from the above tabulation?
a) Agriculture has been stable at 3.5% but due to regulatory and supply side issues, mining has been trending lower.
b) The key disappointment for FY23 is likely to be manufacturing at just 1.6% due to a combination of weak demand, tepid exports and supply chain constraints.
c) There has been a sharp growth in the services sector. Construction is likely to grow at 9.1%, and financial and realty at 6.4%.
d) The standout service sector would be trade and hotels at 13.7% on the back of revenge demand in the contact-intensive segments.
It now looks almost certain that India would be the fastest-growing large economy in FY23.
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