8 mins read . 05 Dec 2022
The Q2FY23 GDP growth estimate at 6.3% may look rather dismal compared to the 8.7% growth achieved in FY22 and the impressive 13.5% in the first quarter, Q1FY23. However, it must be remembered that Q2FY23 had several strong global headwinds. The inflation levels had gone up sharply and central banks were in the midst of rapid tightening. Global fears of recession was compressing global demand, hitting exports, while input and interest costs were escalating for Indian corporates. That is the background to Q2FY23.
The Q2FY23 GDP at 6.3% was exactly as projected by RBI but slightly better than the consensus estimates of Reuters and Bloomberg, which veered closer to 6.2%. In fact, most of the research outfits had pegged the second quarter GDP to grow between 5.6% and 6%, so the final number at 6.3% is much better than anticipated. However, the real GDP growth continues to take an inordinate hit on account of inflation.
The real GDP growth is nominal growth minus the rate of inflation. For Q2FY23, the nominal GDP at Rs65.31 trillion was 16.2% higher on a yoy basis. However, the real GDP at Rs38.17 trillion was up just about 6.3% on a yoy basis. That means, most of the damage to real GDP growth was caused by high inflation. It also logically follows that once inflation levels are tamed, it will have a multiplier effect on the real GDP growth in coming quarters.
The gross value added (GVA) has emerged as an important alternative measure to GDP. The GVA is nothing but the GDP adjusted for the impact of indirect taxes and subsidies. In short, the GVA gives a more realistic and output driven picture of macroeconomic growth. In the Indian context, the GVA growth always tends to be less than GDP growth as indirect taxes and subsidies account for a major chunk of the total output value.
Let us look at how the India's GVA has grown compared to the corresponding previous quarters. Q2FY23 GVA stands at Rs35.06 trillion compared to Rs33.19 trillion in Q2FY22, implying yoy real GVA growth of 5.6%. Let us also look at how the GVA has grown compared to Q2FY21. The Q2FY21 GVA stands at Rs30.65 trillion in Q1FY21, implying real GVA growth of 14.8% over a 2-year period.
The table below captures the gist of the GVA growth which gives a picture of how the sectoral growth in the quarter was driven.
|Industry||GVA at Basic Price|
|2020-21||2021-22||2022-23||Percentage Change Over Previous Year|
|1. Agriculture, Forestry & Fishing||4,62,006||3,93,424||4,72,258||4,05,870||4,93,325||4,24,386||2.2||3.2||4.5||4.6|
|2. Mining & Quarrying||68,000||59,916||80,243||68,626||85,423||66,696||18.0||14.5||6.5||-2.8|
|4. Electricity, Gas, Water Supply & Other Utility Services||67,901||74,997||77,297||81,385||88,640||85,971||13.8||8.5||14.7||5.6|
|6. Trade, Hotels, Transport, Communication & Services related to Broadcasting||3,31,582||5,16,278||4,45,454||5,65,940||5,59,723||6,49,354||34.3||9.6||25.7||14.7|
|7. Financial, Real Estate & Professional Services||7,87,925||8,12,108||8,05,847||8,61,973||8,80,313||9,24,137||2.3||6.1||9.2||7.2|
|8. Public Administration, Defence & Other Services||3,47,501||3,91,371||3,69,150||4,67,491||4,66,380||4,97,946||6.2||19.4||26.3||6.5|
|GVA at Basic Prices||25,83,801||30,64,920||30,52,664||33,19,248||34,41,826||35,05,599||18.1||8.3||12.7||5.6|
Data Source: MOSPI
What are the key takeaways from the GVA data above?
The quick reaction is that the GDP for Q2 may not be too impressive, standalone. However, considering the circumstances and the expectations, Q2 has been a good deal for India.
Nominal GDP is the GDP before adjusting for inflation and is significant as it shows the level of economic activity and creation of jobs in the economy. For Q2FY23, the nominal GDP was Rs65.31 trillion, which is a yoy growth of 16.2%. On a pre-COVID 2-year basis, nominal GDP grew 38.3%. Here are the key drivers.
That is the gist of the GDP story. The 6.3% GDP growth is amidst trying times and promises full year FY23 GDP growth of around 7.0% to 7.3%. That will still make India the fastest growing large economy in the world with a 400 bps gap over China.