The Indian economy seems to be getting over the hump, and the National Statistics Office issued word on Wednesday evening indicating as much.
In Q2, GDP grew by 6.3%, giving the the RBI a bullseye moment, after it sorely missed the mark with Q1 estimates in August. The economy grew at 8.4% in Q2, FY22, but that was largely due to the base effect.
The latest print also gives enough cheer to the government, as a sub-6% growth in Q2 would not only take the bloom off the rose, but also make the 7% annual estimate out of reach this fiscal. But as the central bank noted last fortnight, with Q2 at 6.3%, all we need is 4.6% growth in both Q3 and Q4 to be on course for a salubrious 7% growth.
As per the provisional estimates released on Wednesday, real GDP stood at Rs 38.17 lakh crore in Q2, FY23, as against Rs 35.89 lakh crore in Q2, FY22.
Likewise, for the first half of FY23, the real GDP printed at Rs 75 lakh crore compared to Rs 68.36 lakh crore a year ago, translating to growth of 9.7%, several shades lower than H1, FY22 when growth stood at 13.7% (compared to FY21).
The sole reason for the current fiscal's single-digit growth in H1 is due to the lower-than-expected Q1, FY23 growth rate of 13.5% as against the consensus estimates of over 16%.
While the headline number is in line with expectations, the sub-components are somewhat giving the chills with mining and manufacturing entering the negative territory yet again.
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A year ago, mining sector was bursting with a 14.5% growth, while manufacturing turned in 5.6% growth. In Q2, they contracted by 2.8% and 4.3% respectively.
Analysts believe the Q2 manufacturing sector growth was weak due to margin compression. Corporate earnings in Q2, excluding banking and financial sector, is showing degrowth in profits by 14% y-o-y as against 35% growth a year before. According to SBI research, corporate margins seem to be under pressure due to high input costs.
The other components on the production side that grew lower than last year include electricity, construction and public administration, defence and others, but the services industry comprising trade, hotels, transport and others threw in a chip-up performance at 14.7% growth.
On the expenditure side, consumption remained subdued with a 10% growth over last year, but remained flat in the last quarter, perhaps reflective of the toll inflationary pressures and rising interest rates were having on households and businesses.
Private investments maintained a modest growth of 10% over last year, even though on a sequential basis it stood at a dismal 3.4%. The major disappointment came from government consumption and expenditure that contracted by a heart-sinking 4.3% over last year and a staggering 19% contraction, sequentially.
The declining government spending in both Q1 and Q2 is in line with the government's stated position to front-load spending in the first half of the fiscal for better output. It also shows the Centre's aggressive expenditure rationalisation, notwithstanding a double-digit growth in tax revenues, to avoid the fiscal deficit going beyond the targeted levels and perhaps leaving itself room to maneuver amid concerns of a looming global polycrisis.
That we need to batten down the hatches and wait for the storm to pass is also somewhat evident from the speed with which growth estimates are being revised downwards. For instance, the RBI in August pegged growth at 7.2% for Q2, supported by a favourable base, but has been paring it down every month since then.
In September, it lowered growth rate to 6.8% even though its sounded optimistic about the economy treading a path of recovery in spite of global headwinds. A month later, in October, its assessment using 27-high-frequency indicators, reflected 'uncertain and fragile global economic environment,' forcing it to cut estimates down to 6.4% for Q2.
Finally, in November, ie., just a fortnight ago, it knocked off another 0.1% of its previous estimate, but more than the downward revision, in a chin-stroking moment, the central bank's economists gave out a range, instead of a point target, pegging growth at 6.1-6.3% in Q2.
The global uncertainty is also hurting India's exports.
In Q1, exports grew by 25%, but in Q2, they fell to a dismal 2.8%. In October, exports were 16.7% lower than last year. India’s merchandise exports fell to a 20-month low at $29.78 billion in October 2022. The m-o-m contraction of 19.4% was the sharpest since April, 2020 reflecting the knock-on effects of worsening global economic outlook. Imports contracted on m-o-m basis by 11.4% to $56.69 billion, the lowest monthly level this fiscal, while the annual increase by 5.7% was also the lowest since January, 2021.
The upshot is, India remains an outlier in the index for new export orders in October, unlike most major economies which remained in contraction mode.