Making a flurry of revisions in the economy’s growth estimates, the National Statistical Office (NSO) on Thursday raised India’s real GDP growth esimate for this year to 7.6% from the 7.3% projected last month. It also scaled down its 7.2% growth estimate for 2022-23 to 7%, and raised its 2021-22 estimate from 9.1% to 9.7%.

The Gross Value Added (GVA) in the economy is projected to rise 6.9% this year, with the NSO downgrading last year’s GVA growth to 6.7% from 7%. GDP growth for the first two quarters of this year was raised to 8.2% and 8.1%, further rising to 8.4% for the the October to December 2023 quarter (Q3).

Economists expressed some surprise that GVA growth in Q3 slid to just 6.5% from revised estimates of 8.2% and 7.7% in Q1 and Q2, respectively. Concerns also persisted about private consumption, which grew 3.5% in Q3 from 2.4% in Q2, while the full year growth estimate was downgraded to 3% from the 4.4% reckoned in early January.

Struggling farm sector

Farm sector GVA growth slipped into a 0.8% contraction in Q3, and the full year is now expected to record a mere 0.7% rise, compared with 4.7% in 2022-23. Chief Economic Advisor V. Anantha Nageswaran said he expects the farm sector to recover next year, adding that industrial growth had lifted growth this year. Acceleration in GVA growth from three key sectors has helped: construction, up 10.7%; manufacturing, which is up 8.5% from a 2.2% dip in 2022-23; and mining, up 8.1% versus 1.9% last year.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, attributed this year’s growth upgrade to the downward revision to last year’s growth numbers, and the stronger investment and net exports, although consumption is lagging. “More intriguing is that the GVA estimates for this year have been left unchanged while GDP is sharply higher,” she said.

GVA growth in the employment-intensive trade, hotels, transport, communications, and broadcasting services sectors is expected to almost halve to 6.5% in 2023-24 from 12% in 2022-23. Mr. Nageswaran stressed that this comes on the back of very strong upticks in 2021-22 and 2022-23, so that this is more of a stabilisation rather than a dip.

Q4 growth to dip

“Some surprises that need further exploration relate to GVA growth remaining at 6.9% while GDP growth is being revised upwards to 7.6%. Also, the average GDP growth for the first three quarters of the year is 8.2%, implying that the fourth quarter growth would only be at 5.9%,” noted EY India chief policy advisor D.K. Srivastava.

“The data still has lot of noise in it as reflected in large swings in the discrepancy numbers for this year as well as last year. Interestingly, there has been a downward revision in the growth of demand-side drivers,” India Ratings and Research economists Sunil Kumar Sinha and Paras Jasrai said, highlighting that consumption demand remains weak and skewed towards items largely consumed by upper income households.

The Monetary Policy Committee has unanimously decided to keep the policy repo rate unchanged, RBI Governor Shaktikanta Das said in Mumbai on August 10, 2023.
| Photo Credit: Emmanual Yogini

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. 

The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Explaining the MPC’s rationale for these decisions on the policy rate and the stance, RBI governor Shaktikanta Das in his statement said, “Headline inflation, after reaching a low of 4.3% in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.”

“While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far. These developments warrant a heightened vigil on the evolving inflation trajectory,” he said. 

“The cumulative rate hike of 250 basis points undertaken by the MPC is working its way into the economy. Nonetheless, domestic economic activity is holding up well and is likely to retain its momentum, despite weak external demand. Considering this confluence of factors, the MPC decided to remain watchful and evaluate the emerging situation,” he added. 

Consequently, the MPC decided to keep the policy repo rate unchanged at 6.50% with preparedness to act, should the situation so warrant, Mr. Das said. 

He said the MPC remained resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations.

Taking all various factors into consideration, the Governor said the real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8.0%; Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. Real GDP growth for Q1:2024-25 is projected at 6.6%. The risks are evenly balanced.

Given the continuing external uncertainties, the latest CPI inflation projection for 2023-24, assuming a normal monsoon, has been revised to 5.4%, with Q2 at 6.2%, Q3 at 5.7% and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%. The risks are evenly balanced.

The Governor said considering the difficulties in major economies, the Indian economy is better placed. “India can become the new growth engine of the world,” he said.