India’s economy grew by 7.2% in FY23 as against the NSO’s earlier estimate of 7.0% (SBI estimate: 7.1%). The better-than-expected growth is primarily due to 6.1% GDP growth in Q4 FY23 GDP. GVA growth for Q4 GDP was higher than the GDP growth perhaps as net indirect taxes came lower than expected, possibly because of higher subsidies in Q4FY24.
During FY23, Manufacturing was the only sector which exhibited muted growth of 1.3%, though in Q4 Manufacturing growth rate jumped by 4.5% (partly aided by a low base) and Agriculture grew by 4.0%. Mining & Quarrying and construction grew by 4.6% and 10.0%, respectively. Among services, ‘Financial, Real Estate & Professional Services’ grew by 7.1% and ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ grew by 14.0%.
Turning to secondary indicators of growth, scheduled commercial banks’ (SCBs) credit growth remained strong at 15.5% as on May 5, 2023, albeit down from the peak of 17.8% recorded in October 2022 due to an unfavourable base effect and moderation in credit growth to the industrial sector. The sector-wise credit for April 2023 indicates that except Industry, credit to all other sectors has jumped significantly. The credit-to-GDP gap narrowed, reflecting the improved credit demand in the economy in the face of rising capacity utilisation in the manufacturing sector.
The construction sector has remained upbeat due to sustained impetus on infrastructure spending by the Government. Healthy order book position of construction sector, aided by ~11% growth in FY23 (to around Rs 7 trillion for nine construction players), reflects medium term revenue visibility in the space and improvement in rural employment.
The Monthly SBI Composite Index has continued to increase and is at 56.0 (High Growth) in May 2023, compared to 56.2 (High Growth) in April 2023. The yearly index increased to 54.7 (Moderate Growth) in April 2023 from 55.2 (Moderate Growth) in March 2023. Investment activities, driven by Government’s capex push, is at all-time high. Led by private sectors new investment announcements, as per projects today, touched all time high of Rs 37 trillion in FY23 as compared to Rs 20 trillion in FY22. The construction sector remained upbeat due to sustained impetus on infrastructure spending by the Government.
Overall, despite some slowdown in demand, the overall economic strength remains intact. The rebalancing of demand from private consumption to investments supported by government capex needs further support. The private investment activity looks robust and domestic monetary and credit conditions remains supportive of growth in FY24.
The GDP on the expenditure side show somewhat mixed picture. The total final consumption was at 6.4% in FY23 in real terms, dragged by rural consumption with inflation in the beginning of the year holding fort. The growth in private consumption, the largest component of demand saw a deceleration in the FY23 with growth falling to 7.5% in FY23. The government consumption registered a growth of 0.1% in real terms.
The high frequency indicators of rural demand still show lagging trends with respect to urban counterparts. Nominal wages in rural areas (all occupations) increased at 6% yoy average growth in Q4 FY23, with wages of agricultural workers growing at even higher rate. When we consider real wages, the rate of growth has been modest, below 0.5% yoy growth for all occupations as well as for agri workers. FMCG companies, in the listed space, reported 14% growth in top line while bottom line grew by 28% in Q4FY23 as compared to previous year. However, some of the companies have reported decline in rural volume due to sluggish demand.
The price movement in the total basket of goods and services as captured in deflator declined to 4.1% in Q4FY23, compared to 12.9% in Q1FY23. As WPI inflation eased since October 2022, GDP deflator inflation moderated to 6.6 % in Q3 from 10.3% in Q2. Overall, in FY23, GDP deflator inflation moderated to 8.2% from 8.5% in FY22. The decomposition of GDP deflator based on components of demand show that large part of gain in deflator came from price rise in basket of goods covering private demand.
We are now factoring in a pick-up in growth momentum in FY24. We are upgrading our baseline forecast from 6.2% to 6.7%. Continuing on the path of strong activity in FY23, we project real GDP growth for FY24 at 6.7% with Q1 at 7.8%, Q2 at 6.5% , Q3 at 6.3% and Q4 at 6.2%, amid broadly balanced risks.
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