Pencilling in just 4 per cent GDP growth for the fourth quarter, a rating agency report has said the final growth numbers for the full year will be lower than the second advance estimate of 7 per cent.
The economy grew at 13.2 per cent in the first quarter and 6.3 per cent in the second three-month period due to base effect and much lower than the consensus expectation of 4.4 per cent in the third quarter. To close the full fiscal with a 7 per cent growth, the GDP should deliver at least a 4.1 per cent uptick.
Missing projections
India Ratings analyst Paras Jasrai in a report said the agency expects GDP to print in at around 4 per cent in Q4, which would mean GDP growth for FY23 could be lower than 7 per cent but did not quantify the same.
The National Statistical Office, in its second advanced estimate, has retained GDP growth at 7 per cent for the full year, which factors in a growth of 5.1 per cent. However, the agency sees many downside risks to this estimate, such as the pent-up demand, which had provided thrust to growth, is normalising; exports that had been buoyant are facing headwinds from the global slowdown and credit growth is facing tighter financial conditions.
The ongoing spell of elevated temperatures in the north in February has raised concerns regarding wheat production.
Climate change to hit growth
In addition, the Met department has warned of the plausibility of severe heatwaves during March-May. This can not only affect agricultural output, which has been pegged to grow at 4.3 per cent in Q4, but also keep inflation at elevated levels that can impact rural demand, which has been under stress since the pandemic, Jasrai explained.
The growth moderated to a three-quarter low of 4.4 per cent in Q3 as against the consensus projection of 5.1 per cent, pulled down by the poor show by manufacturing and exports, among others.
The gross value added (GVA), which is the value of production, grew 4.6 per cent in Q3. The difference between GVA and GDP is indirect taxes net of subsidies.
Though typically GDP growth is higher than GVA growth, the net taxes in Q3 were at a seven-quarter low of 1.4 per cent due to higher subsidies, and as a result, GVA growth in Q3 was higher than GDP growth.
Comparisons with pre-pandemic levels accurate
Since the base effects after the pandemic have complicated growth comparisons, a better way to analyse the numbers is to compare them with the pre-pandemic period (Q3 FY20) to ascertain recovery. Thus the compounded annual growth during Q3 FY20-Q3 FY23 stood at 3.7 per cent, which remains much lower than the comparative numbers of 5.4 per cent during Q3 FY17-Q3 FY20, as per the report.
Further confounding the growth expectations are the fall in merchandise exports, which contracted 6.6 per cent to USD 32.91 billion in January. This was the second successive month of contraction, mirroring an anaemic manufacturing activity.
Imports and exports suffer alike
Like exports, even merchandise imports fell 3.6 per cent in January to USD 50.66 billion, owing to a decline in commodity prices. This was the sharpest fall in 25 months. On the positive side, the trade surplus in services almost doubled to USD 16.48 billion in January from USD 8.39 billion a year ago. As a result, the overall trade deficit improved to USD 1.26 billion in January from USD 8.95 billion in January 2022, which was USD 6.65 billion in December 2022.
Another downside risk is the low liquidity in the banking system, after remaining in a huge surplus since the beginning of the pandemic. The liquidity in the banking system slowed to a four-month low of 0.43 per cent of the net demand and time liabilities in January from 0.53 per cent in December 2022 due to a robust credit demand in January.
