Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
"India's GDP growth in Q2FY23 at 6.3% YoY has been slightly lower than our forecast and expectedly, has been driven by a strong pickup in the services sector as compared to the previous year which had been impacted by the pandemic fears. The pent up demand has led to a 14.7% YoY growth in GVA from trade, transport, hotel and communication segment. While the GVA from manufacturing has been below expectations by contracting by 4.3% YoY, the agriculture sector has been somewhat of a surprise by growing at 4.6% despite the inconsistency in rainfall.
What is noteworthy and consistent with our expectations is the growth in private consumption expenditure which stood at 9.7% YoY in Q2. This had already been corroborated by our proprietary AMEP index print which on an average grew by 12.7% in Q2FY23 over Q2FY22. Gross capital formation grew by 10.4% and reflects the increased government orientation towards capital expenditure. There has been, however, a 4.3% reduction in government consumption expenditure which possibly is due to tighter revenue spending. The higher trade deficit in Q2 has also impacted the GDP print for Q2.
We believe that the manufacturing sector will continue to see a lack of momentum due to the decline in exports and may impact the overall growth print for FY23. While we continue to peg GDP growth at 7.0% given the reasonably healthy domestic demand, downside risks to the forecast have increased due to the intense global headwinds. We continue with our expectations of a moderate hike of 30-35 bps in the repo rate in Dec-22 as the growth data has been in line with RBI's forecasts."