Uptick in last quarter lifts GDP growth in fiscal 2023

• India’s real gross domestic product (GDP) growth rose sharply to 6.1% on-year in the fourth quarter of fiscal 2023 compared with 4.5% in the third
• The growth surpassed the number factored in the National Statistics Office’s (NSO) second advance estimate of February. Annual growth for fiscal 2023 was revised up to 7.2% (provisional estimate) from 7.0% in the second advance estimate
• Fourth-quarter growth was primarily driven by investment and net exports, with the latter less of a drag given rising exports and slowing imports. Fixed investment turned in the strongest growth on the demand side while private consumption growth was more subdued on-quarter . Manufacturing and agriculture growth improved on-quarter on the supply side even as services growth remained strong, albeit slowing a tad relative to the previous quarter
• The provisional estimate of 7.2% comes on top of 9.1% expansion in fiscal 2022. This suggests strong growth momentum, which was propelled by domestic demand through the year, both from investment and private consumption. Investment’s share rose to an 11-year high of 34% of GDP, while that of private consumption rose to an 18-year high of 58.5% in fiscal 2023
• However, nominal GDP growth tapered to 10.4% on-year in the fourth quarter compared with 11.4% in the third. This was primarily due to the price-effect, since the GDP deflator slowed to 4.1% from 6.6%. The deflator is significantly influenced by inflation based on wholesale price index (WPI), which halved to 3.3% from 6.6%. The gap between nominal and real growth is likely to reduce further, with inflation expected falling this fiscal

While the growth momentum was strong in fiscal 2023, the current fiscal will feel the lagged impact of rate hikes of central banks over the past 15 months.

External demand is likely to be a bigger hindrance to growth with western advanced economies staring at a sharp slowdown in the coming quarters, whipping up a headwind for exports. While domestic demand will also weaken, hit by rising lending rates, softening inflation and government capex will offer support. Monsoon and El Nino risks remain a swing factor.

Overall, we expect India’s real GDP growth to slow to 6.0% in this fiscal 2024 from 7.2% in the previous fiscal.