Indian economy has grown by 4.4% during Oct-Dec’22 quarter (Q3’FY23) as per the data released by NSO today. Growth rate significantly lower than 6.3% in Q2’23 and 5.4% in Q3’FY22. Yet, it is in line with RBI’s projection. Further, Q3 growth rate is better than Q2 when compared to the figures for FY20. Here is a brief analysis of GDP and its constituents.

As per the NSO (National Statistical Office) release, India’s GDP was Rs 40.2 lakh crore on constant price basis and Rs 69.4 lakh on current price basis during the quarter. (All subsequent comparison is on constant price basis). GVA (Gross Value Added) was Rs 37.2 lakh crore against Rs 35.5 lakh crore last year implying a growth of 4.6%, marginally higher than GDP growth rate. Lower GDP growth implies that growth in government’s net tax collection (tax minus subsidy) is lower than GVA growth. This was so because of sharp increase in food and fertilizer subsidy. (GDP = GVA + Taxes – Subsidy). An important comparison could be the performance w.r.t to corresponding quarter of FY20, the year before pandemic. On that count, GDP growth is 11.7% in Q3 against 6.3% and 3.8% in Q2 and Q1 respectively. The double comparison, against previous year as well as against FY20 makes the analysis repetitive but unavoidable.

Sectoral Analysis – 

GDP of the economy is calculated by estimating GVA (Gross Value Added) for eight segments – Agriculture with share of 16% in GVA in FY22, Mining (2%), Manufacturing (18%), Electricity (& other utilities, 2%), Construction (8%), Trade (hotels, transport etc, 18%), Financial (real estate & professional services, 23%) and Public Administration (& defence etc, 14%). To this, net government tax is added to arrive at GDP. This is the second quarter when all the eight segments have shown growth over pre-pandemic quarter, possibly, putting the ghost of Covid to rest now

Of the eight segments, only manufacturing has recorded a decline over previous year; although marginal at 1.1%. However, its performance needs to be analysed more closely to form a conclusion. First, the figures for the past two quarters have been revised upwards significantly which means even this could see an upward revision. Absolute figures for Q1 and Q2 have been revised to Rs 6.4 and 6.3 lakh crore against original estimates of Rs 6.05 lakh crore and Rs 5.98 lakh crore. Secondly, in comparison to FY20, growth rate is 12.9% in Q3 against 11.8% in Q2 which, possibly, is a more credible measure of growth momentum.

Other than this, all the segments have recorded growth over previous year. Trade & hotels group recorded the highest growth of 9.7%, although lower than 15.6% in Q2. Over FY20, Q3 growth is 8.3% against 6.7% in Q2 and -10.2% in Q1 implying increasing activity. It would be interesting to watch the performance of this segment as this should be getting a boost because of events associated with India’s G20 presidentship. ‘Financial, real estate & professional services’, accounting for highest share of 23% in GVA, recorded growth of 5.8%, against lower that 7.1% in Q2. However, its performance over FY20 is the best with growth of 21% against 8.9% in Q2. Construction, another important sector for employment generation, accelerated its growth; from 5.8% in Q2 to 8.4% in Q3. This is another sector whose growth rate over FY20 has risen sharply; from 12% in Q2 to 18.3% in Q3.

Of great significance is the sharp decline in growth rate of ‘Public administration, defence etc’, largely government expenditure. This grew by only 2% against 5.6% in Q2 and 21.3% in Q1. Over FY20, growth rate has come down to 7.3% from 8.5% in Q2 and 12% in Q1. The segment acts as a kind of balancing force which means government increases its expenditure if other segments are weak. Improving sentiments across other segments seems to have prompted government to reduce its expenditure.

Expenditure Analysis –

GDP is also calculated from the expenditure side and is equal to amount spent by the three segments – expenditure by households called private final consumption expenditure (PFCE), expenditure by government called Government final consumption expenditure (GFCE) and expenditure on creating physical assets or investments called gross fixed capital formation (GFCF). Net trade and few other adjustments are made to arrive at final GDP through this route. Approximate share of the three were 57%, 11% and 32% in FY22.

Private consumption has grown at only 2.1%, down from 8.8% in Q2. However, decline is only marginal over FY20; from 15.2% to 14.8%. Yet, the y-o-y decline is quite surprising considering the fact that consumers were on a spending spree during the festive quarter after subdued festivities for two consecutive years. GFCE (Govt expenditure) declined by 0.8% after a decline of 4.1% in Q2 and marginal increase of 1.8% in Q1. Over FY20, it is marginally better at 0.5% in Q3 against decline of as much as 20% in Q2. (Q2’FY20 was unusual as government had resorted to heavy spending, which rose by 15%, to boost the sagging economy).

Of the three components, only investments managed to retain some momentum; growing by 8.3%, lower than 9.7% in Q2 yet quite reasonable. While there is a significant decline in growth rate from 21.4% to 12.5% over FY20, a figure above 10% should not be a cause of alarm yet.

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