India shines bright; posts the highest GDP growth among global peers

The Indian economy has once again proved its resilience and showed a sharp pickup in GDP growth despite the uncertainties and slumping global growth rates. India’s GDP growth accelerated to 13.5% in Q1FY23 as against the 4.1% growth in the previous quarter of 4.1% in Q4FY22. This growth places India at the top rank of the high-growth economies among the G-20 nations  (2.8 times higher than average GDP growth for the 20 largest economies which is 4.9%) with macro-economic indicators signalling that growth momentum could remain upbeat in the coming quarters.  Unsurprisingly, the Indian economy has gained the most due to its strong demographics and rising consumerisation. The first quarter’s strong GDP reading show reflects the better-than-expected re-opening effect, driven by a spill over in pent-up demand and a strong recovery in some of the services sectors along with a pick-up in investment activity.

Consumption packs a punch

Indeed, private consumption showed a robust annualized growth of 25.9% and was the highlight in the latest GDP print. This pick-up is remarkable considering that private consumption has been showing decelerating trends for the previous three quarters. No doubt, one of the reasons for this sharp uptick is the lower base.

However, the services sector has also been showing a robust uptick as can be seen from the recovery in trade, hotels, transport, communication and broadcasting segments which grew at 25.7% YoY.

Consumption indicators are showing a broad-based improvement with the rise of consumer goods production, passenger vehicle sales and growth in air travel. A complete unlocking of the domestic economy coupled with a high vaccination cover was among the key drivers of the expansion.

So even while the global economy faced uncertainties due to the Ukraine conflict and the supply disruptions, economic growth showed a good lift with domestic support. In fact, the full normalization in contact-intensive sectors reflects the economic growth potential of India and the optimism that India remains a strong domestic growth story.

Agri trend supportive

Another encouraging data point comes from the agriculture sector, which grew 4.5% YoY. This is a robust growth and a nine-quarter high. The data is also in contrast to the reports that the heatwave has damaged crops, and shows there has been a strong compensation effect coming from allied agricultural activities.

The industrial gross value addition also posted strong growth of 8.6% YoY, up sharply from the 1.3% YoY growth in Q4FY22. Construction has contributed the most in the industrial cohort with YoY gross value added (GVA) up by 16.8%. Another major indicator that shows a shining trend is a growth in the utility segment of electricity, gas and water supply with GVA here coming in at 14.7% YoY.

On the other hand, government consumption has not picked up the pace to the desired levels and decelerated to 1.3% YoY from 4.8% in Q4FY22 reflecting the slow pace in disbursal of revenue expenditures. One worrisome factor is that Indian manufacturing remains sluggish with the GVA here showing a slow pace of growth at 4.8%.

However, these numbers are better than the sluggish growth in Q4FY22 of 0.2%. This should also be seen in the light of margin pressures on account of elevated raw material prices which weighed on the manufacturing sector in Q1FY23. Hence, the manufacturing picture is commendable.

Exports posted a mild moderation from the previous quarter coming in at 14.7%, while imports jumped on the back of domestic demand. One another factor affecting the import numbers is the high oil prices, which may have played a big role in the high import print of Q1FY23 at 37.2%. A slowdown in global growth and supply disruptions is affecting India’s exports.

Financial Services show considerable revival – 9.25 growth in the back of credit growth. Credit disbursed is ₹6 trillion in FY23 .Hotels and tourism sector growth is at 25.7%.

Investments signal capex revival

Nevertheless, the share of fixed investment in GDP is showing strong growth touching a 10-year high in Q1FY23. It has been one of the main highlights of the post-pandemic economy indicating that capital expenditures continued to remain strong. Gross fixed capital formation registering an increase of 20.1% is a significant milestone.

Over the last few years, there has been a strong focus on investment-led recovery as the shift in capital expenditures shows. With the government’s PLI incentive schemes, and the China + 1 policy, investments should remain the key highlight in the coming quarters. The recent jump in investment proposals, acceleration of bank credit and the rising GST collection suggest the pace of investment recovery will remain buoyant.

Growth trends to persist

No doubt, some of the slowdown in the global economy could play spoilsport with the pace of recovery, as exports might continue to show a lag. However, oil prices have been easing on expectations of a demand slump due to a global recession. This is a key positive for India as it would further strengthen domestic macros.

On the global commodity front, with prices easing for a considerable period of time, an input cost decline is on the cards. This will have a triple benefit for the Indian markets with external trade numbers improving. As a result, optimism remains high about inflation tapering lower in the coming quarters. Corporate margins will also show improving trends.

India’s economic forecasters, however, are not so sanguine given global growth concerns pencilling in about a 7-7.5% GDP growth rate for the full year FY23.

To be sure, the consumption sector must show its resilience in the coming quarters. With rainfall normal, the agricultural sector is expected to continue on positive momentum. Besides, the Indian economy is heading into the key festival season spending which should keep the appetite for consumption going strong. All in all, these factors should continue to keep the optimism of the Indian economy high.

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