India’s GDP growth slowed to 4.4% between October and December 2022, from 6.3% in the second quarter (Q2) of 2022-23, according to the National Statistics Office (NSO), which has maintained its estimate for the growth of the economy over the whole year at 7%, despite the revision of the 2021-2022 GDP, it increased to 9.1% against 8.7% previously estimated.

The ONS has also revised growth contraction figures for the COVID-hit year 2020-2021, setting the overall hit to the economy that year at -5.7% according to the second revised estimates, significantly less than its first provisional estimate at -7.3%.

Gross value added (GVA) in the economy increased by 4.6% in the third quarter (Q3) of 2022-2023, compared to 5.5% in Q2, as manufacturing continued to contract in the second quarter, although at a slower pace of 1.1%. versus 3.6% in Q2.

Economists called the continued slowdown in manufacturing a negative surprise that pulled third-quarter growth levels below their projections. Chief Economic Adviser V Anantha Nageswaran, however, claimed that the 4.4% GDP growth is “also due to revisions made to previous years when the base increased”.

“The growth momentum has carried…it’s the base effect that gave us 4.4% [growth rate] Since the data is not seasonally adjusted, quarter-on-quarter growth trends should be interpreted with caution,” he said, adding that the economy’s momentum appears strong and stable and “ there is no reason to believe that we will not be able to reach” the 7% mark of real GDP growth in 2022-2023.

Independent economists like ICRA’s Aditi Nayar said the fact that the ONS stuck with hopes of 7% growth for this year, as predicted in early January, implies GDP growth will improve to 5, 1% in the last quarter of the year, which is higher. than “current expectations”.

While acknowledging the calculation, the CEA pointed out that even if the 4.4% growth rate in Q3 persists over the period from January to March (Q4), the annual growth rate will be around 6.8%.

“The second forward estimates for 2022-23 retained overall annual growth at 7% but revised [up] the contribution of the external sector to this overall growth, which was offset by a decline in the components of domestic demand, in particular private and public consumption expenditure. Thus, domestic demand appears to have weakened compared to the previous estimate,” said DK Srivastava, chief policy adviser at EY India.

Cumulatively, the first nine months of 2022-23 have now seen GVA increase by 7.2% compared to 10.7% in the same period of 2021-22, while GDP is estimated to have increased by 7.7% compared to 11.1% from April to December 2021. .

Sectoral dichotomies and sharp revisions

Following data revisions for the past two years, the cumulative average real GDP growth rate over the period 2019-20 to 2022-23 is 3.2 percent, Srivastava said. “From a long-term perspective, Covid has caused a reduction of nearly 4% points from potential growth of 7%,” he noted.

Overall GVA growth in the first quarter has been revised down from a previously estimated 12.7% to 12.1%, while GVA growth in the second quarter has been reduced slightly from 5.6 % previously estimated at 5.5%. GDP growth for the first quarter of 2022-23 was revised down to 13.2% from a previously estimated 13.5%, but Q2 GDP growth estimates remained unchanged.

The manufacturing and mining GVA contractions for the second quarter were updated by the ONS from its earlier estimates of a contraction of 4.3% and 2.8% in the two sectors, respectively. Growth in agricultural GVA, on the other hand, was revised down sharply in both the first and second quarters. Previous estimates of 4.5% and 4.6% GVA growth in these quarters have been reduced to 2.5% (Q1) and 2.4% (Q2), respectively.

Thanks to the revisions, the GVA of mining and quarrying in the third quarter recovered from a contraction of 0.4% in the second quarter to grow by 3.7% in the third quarter, while the GVA of agriculture, forestry and fishing accelerated to 3.7%, the fastest pace of growth this year.

Construction GVA growth also accelerated to 8.4% in Q3 from 5.8% in Q2 (revised down from the previous estimate of 6.6%), as did the electricity, gas, water supply and other utilities (up 8.2% in Q3, compared to 6% in Q2). .

However, three other major business leaders saw weaker GVA growth in Q3 compared to Q2, helping to dampen overall growth, including the trade, hospitality, transportation, communications and services sectors. broadcast-related services, which increased by 9.7% compared to 15.6% in Q2.

The share of private consumption expenditure in GDP reached its highest level this year in the third quarter, which included the holiday season, at 61.6%, but it was lower than the 63% share of the same quarter a year. earlier.

Rajani Sinha, chief economist at CARE Ratings, expressed more concern over India’s investment-to-GDP ratio falling to around 32 in the third quarter from 34 in the second quarter, and said it was essential that the Domestic demand will accelerate in the coming months as external demand conditions remain. weak.

Industry officials said the slowing growth is partly a sign of slowing global growth impulses and rising interest rates.

“The third quarter figures point to the need for a pause in any further hikes in benchmark interest rates by the Reserve Bank of India as high borrowing costs impact sectors such as autos. , housing and high-end consumer durables,” said ASSOCHAM Secretary General Deepak Sood.

GVA growth in public administration, defense and other services weakened from 5.6% in the second quarter to just 2% in the third quarter, while financial, real estate and professional services slowed by 7. 1% in the second quarter to 5.8% in the third quarter.