First Advance Estimates peg FY23 GDP growth at 7%

On 06^th January 2023, the National Statistical Office, MOSPI, released its first advance estimates (AE) of GDP for the financial year 2022-23. It must be noted that the second advance estimate will be released on 28-Feb along with the Dec-22 quarter GDP data. However, the final full year GDP for FY23 will be released on 30th May 2023. 

How GDP panned out in the last 12 quarters

The table below captures the annualized GDP (declared quarterly) for the last 12 quarters in succession. 

Data Source: MOSPI

The first Advance Estimate (AE) of 7.0% estimated by the MOSPI for FY23, is almost at par with the estimates put out by the RBI. The data shows a lot of confidence that the Indian economy could display a sharp recovery in the third and the fourth quarters of FY23. 

Focus on GDP and GVA estimates for FY23

In recent times, the gross value added (GVA) has emerged as a very strong and veritable alternative to GDP to gauge output growth. GVA is the GDP adjusted for the impact of indirect taxes and subsidies; and hence it is considered to be a more realistic reflection of growth. Let us look at GDP and GVA growth projected for FY23 over FY22 and FY21.

How is GVA projected for FY23. GVA is estimated to grow 6.7% yoy over FY22 to Rs145.19 trillion. For FY22, the full year GVA had come in at 8.1%. The previous year growth may be tad misleading due to the base advantage. The growth in FY23 is more reliable as there is less of base effect involved. One quick takeaway from the data is that growth has overcome the COVID overhang. Of course, FY23 has been challenging due to a number of factors like Fed hawkishness, spike in inflation, fear of global slowdown, falling exports etc. Despite these headwinds, GVA growth estimate of 6.7% is certainly commendable.

How about real GDP growth for FY23? GDP is estimated to grow 7.0% yoy over FY22 to Rs157.60 trillion. Here again, it must be said that the growth number in FY23 is more reliable as there is less base effect involved. GDP growth in FY23 is coming amidst several headwinds like central bank hawkishness, RBI staying hawkish, Corporates hit by cost spikes, operating margins contracting etc. Under these circumstances, GDP growth estimate of 7.0% is largely a redemption of the India growth story.

How some of the lead indicators of GDP look like?

The key is to understand how the components of GDP look like in the total GDP base of Rs157.60 trillion in FY23 as per first AE. Unlike in the previous year, when we compared FY22 over FY20, this year we shall directly compare FY23 with FY22, since the base COVID effect is already neutralized. Here are the highlights of the GDP components.

1. Let us first look at private final consumption. It has grown from Rs83.78 trillion in FY22 to Rs90.22 trillion in FY23 (AE). That is growth of 7.7% yoy. Clearly, private consumption is driving the GDP growth in FY23, if we go by the advance estimates.

    

2. Government consumption expenditure has growth from Rs15.77 trillion in FY22 to Rs16.26 trillion in FY23. That is positive growth of 3.1%. This is not as robust as last year, which his understandable with the government reducing its role in driving growth.

    

3. Gross Fixed Capital Formation has grown sharply from Rs47.84 trillion in FY22 to Rs53.36 trillion in FY23. That is positive growth of 11.5%. Capital formation is clearly driving growth, as is evident from the overflowing order books of capital goods companies.

    

4. The head of VALUABLES has remained static at around Rs2.96 trillion. In a way, that is good since it indicates that people are not aggressively diverting spending into assets like gold and jewellery. That was also evident in the tepid festival demand for gold.

    

5. Merchandise Exports increased from Rs31.75 trillion in FY22 to Rs35.70 trillion in FY23. That is positive growth of 12.4%. Exports as a sub-set of trade has been a very important driver of GDP in FY23 also with the spike maintained at last year’s levels.

    

6. Merchandise Imports surged from Rs38.78 trillion in FY22 to Rs46.89 trillion in FY23. That is positive growth of 20.9% yoy. While oil and gold imports tapered, that is more than made up by imports of coking coal, fertilizers, ores, chemicals etc.

How do we sum up the lead indicator story. There are two positives. Firstly, private consumption is picking up and secondly the capital formation has got a big boost. Both are positive for sustainable GDP growth. Of course, the spike in imports remains a challenge, but that may not really have short term solutions.

Sectoral GVA picture and where is growth coming from?

The first advance estimates (AE) pegged the GVA growth at 6.7% for FY23 and the GDP growth at 7.0% for FY22. This is slightly better than the generally pessimistic estimates floating around in the last few months. Here is a quick look at how the GVA growth (net of taxes and subsidies) is likely to look like in the fiscal year FY23.

Data Source: MOSPI

A quick comparison shows that while agriculture has been stable, mining has been trending on the lower side and it is more supply driven. The big disappointment as per the FY23 AE is the manufacturing sector, which his likely to grow at a tepid 1.6% for the year. That has been more than compensated by a sharp growth in the services sector. For instance, construction has continued growth at 9.1% while financial and realty services are pegged to grow at 6.4%. The standout sector is likely to be the trade and hotels segment, which had been the worst by the pandemic, being a highly contact intensive segment. That is the segment that is seeing a lot of revenge buying and that shows in the numbers.

In a global scenario racked by several headwinds, Indian economy is looking to put up a good show. That is the real takeaway from the First AE for FY23 GDP.