India’s Q2FY23 GDP – Moderating Growth

13 Dec 2022

India’s Real GDP grew by 6.3%YY in 2QFY23 vs. 13.5% in 1QFY23. The fall in YoY growth was largely attributed to base effects. Nominal GDP growth remained high at 16.2%YY as deflator, which is used to measure inflation was still close to double digits (9.5%) in 2QFY23. On an aggregate basis, consumption and investment growth remained robust, although manufacturing contracted as profit margins of companies came under pressure due to rising input cost.

• 1. Growth Momentum: Between FY12-FY20, real GDP grew on an average by 0.9%QQ non-seasonally adjusted in 2Q of the financial year. In contrast, real GDP grew by 3.6%QQ in 2QFY23. As per Citi analysts, the growth in sequential momentum, particularly for real GVA Trade, Hotels, Transport, Communication, reflects (a) adjustment of the anomaly in 1Q GDP data and (b) further confirmation of the reopening story.  



• 2. Services and Agriculture Sector: Real GVA Services growth remained strong at 9.3%YY in 2QFY23 with all the components of GVA above pre-Covid levels. Real GVA Agriculture growth also remained healthy at 4.6%YY in 2Q, supported by non-food grain production trends. Real GVA Manufacturing declined by 4.3%YY in 2QFY23. As per Citi analysts, the 3-Yr CAGR% of Real GVA Manufacturing fell from 3.1% in 4QFY22 to 2.0% in 2QFY23. Construction activity momentum remained above trend.

• 3. Weakness in Consumption vs resilient Investment: Real private consumption and real GFCF growth remained resilient while final consumption expenditure was led by sluggish government expenditure (-4.4%YY in 2QFY23). Net exports remained a drag on growth.




Summary: Citi analysts have revised their FY23 real GDP forecast to 6.9%YY (vs. 6.7% earlier) as they expect shift in growth momentum from consumption to investment. Real GDP in FY24 growth is expected at 5.9%YY, with possibility of a more pronounced slowdown in 2HFY24, when the lagged impact of rate hikes and global slowdown would be more visible.