Aditi Nayar, Chief Economist, ICRA.
GDP growth surged to a four-quarter high of 13.5% in Q1 FY2023, broadly in line with our estimate of 13.0%, and substantially lower than the MPC's projection of 16.2%. GDP growth will certainly moderate in Q2 FY2023, as the base effect normalises, as underscored by the moderation in the core sector growth in July 2022. Additionally, an uneven monsoon is likely to weigh upon agri GVA growth and rural demand. However, a robust demand for services, and some easing in the commodity price-inflicted pain for producers should support a YoY GDP growth of 6.5-7.0% in the ongoing quarter, and 7.2% for the year as a whole.
The GVA growth of 12.7% in Q1 FY2023, printed in line with our forecast (12.6%), powered by a sharp base-effect led 17.6% expansion in services and an 8.6% rise in industry, amid a surprisingly sanguine 4.5% growth in agricultural GVA belying the adverse impact of the heat wave on the rabi harvest of wheat.
We foresee modest downside risks to the NSO's initial estimate of 12.7% GVA growth in Q1 FY2023, on account of potential downward revisions in the agricultural performance from the current level of 4.5%.
Within industry, the growth of mining, manufacturing and electricity mildly trailed our projections, suggesting a larger role of commodity prices in squeezing margins.
Relative to the pre-covid level, trade, hotels, transport etc stood out as the only sub-sector reporting a contraction in Q1 FY2023, in line with the robust but incomplete recovery in contact-intensive sectors.
The GDP growth of 13.5% in Q1 FY2023 was boosted by private final consumption expenditure and gross fixed capital formation, whereas government final consumption expenditure displayed an anaemic YoY growth of 1.3%.