India’s second-quarter GDP growth slows to 6.3pc on higher prices

India posted an economic growth of 6.3 per cent in its July-September quarter, far slower than the 13.5 per cent growth reported in the previous three months as distortions caused by Covid-19 lockdowns faded in Asia's third-largest economy.

Government capital spending increased more than 40 per cent during the quarter as the federal government stepped up expenditure on infrastructure from roads to railways, according to official data on Wednesday.

The growth rate was above the 6.2 per cent forecast by economists in a Reuters poll for the quarter, the second of India's 2022/23 financial year.

"Second-quarter GVA (gross value added) growth expectedly slowed at 5.6 per cent, led by growth in the services sector while manufacturing was a big drag.

"Going ahead, even as recovery in domestic economic activity is yet to become broad-based, protracted global drags, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output.

"This will put pressure on domestic growth, which still lacks the next lever of secular growth. We see downside risks increasing for our 7 per cent growth forecast for FY23."

"The GDP numbers came in line with our expectations. However, the GVA numbers have been softer than expected, led by weaker manufacturing activity. Expectedly, the services segments have been playing catch-up although the sector still remains the only category lagging from its pre-pandemic levels. We retain our FY23 GDP estimate at 6.8 per cent and remain watchful of the increasing global headwinds."

"Under the hood, the GVA components signal a two-speed momentum as agri and allied sectors fared better than expected, likely on non-farm output, while crop production was affected by inclement weather conditions, and contact-intensive sectors quickened as expected.

"Beyond the 2QFY data, which is backward-looking, sequential momentum is expected to ease in the second half of the year as base effects turn unfavourable, and pent-up demand as well as festive bounce is largely behind us."

"India's real GDP growth was slightly lower than our expectation. Both consumption and investment remained weak, the evidence of which was clear looking at various high frequency indicators.

"Weak festival period led pent-up demand momentum, and hence, weak business confidence was also amply reflected in the IIP data. We retain our full-year growth expectation at 6.9 per cent YoY."

"The deceleration of GDP growth was expected due to both asymmetric base effect and sharp slowdown of exports in the latest quarter. We expect the growth slowdown to continue for the remainder of the current financial year.

"Services in the supply side and investments in the demand side would continue to be the main drivers of growth, while industry and consumption plus net exports will be the main drags.

"Tightening bias of monetary and fiscal consolidation would continue in India during the current year. Both policies are likely to turn neutral next year as inflation and growth rates cool off."

"GDP growth at 6.3 per cent in 2QFY23 was in line with our expectation of 6.2 per cent. The internals indicate a substantially weak growth in the industrials sector, led by manufacturing while the services sector growth has been steady given the recovery in contact-based services."

"Growth is likely to be lower in the third quarter, both due to post-festive demand seasonality as well as slowing export growth, given global conditions. Base effects of the corresponding quarters of FY22 will then lead to the actual growth prints, which we expect to average 4.5 per cent Y/Y in H2 FY23.

"If these assumptions are correct, we should see a 7 per cent+ growth for FY23. However, FY23 growth is likely to be lower, that global growth in 2023 is likely to be very anemic.

"A slowdown in the growth momentum in FY24 might actually be desirable, given global macro-economic conditions. Manufacturing remains a concern, given the links with merchandise exports, which might need to be compensated with a shift to domestic demand. Services, as a whole, might be expected to hold up."

"The Q2 FY2023 GDP growth of 6.3 per cent came in similar to our estimate of 6.5 per cent, even as the GVA rise of 5.6 per cent trailed our forecast (6.3 per cent) by a wide margin, led by an unexpected contraction in manufacturing that seems to reflect the impact of high input prices on margins in certain sectors.

"We are retaining our estimate of the real GDP growth for FY2023 at 7.2 per cent, although a deepening of the external slowdown poses a risk."

"As expected, service activity was the major driver of growth, while the manufacturing GDP contracted. On the demand side, private consumption share to GDP fell — a signal towards the fragility of the consumption recovery seen in Q1 as the pent-up demand effect faded and elevated inflation hurt consumer spending.

"Going forward, both export growth and consumption could present downside risks to the GDP outlook. We expect H2 FY23 growth to be between 4 per cent and 4.5 per cent and full-year growth at 6.8 per cent. For FY24, growth is expected to moderate further to 6 per cent as global headwinds rise.

"This GDP print does not change our view that the Reserve Bank of India (RBI) is likely to raise rates by 35bps, taking the policy rate to 6.25 per cent at its December meeting."

"Even as domestic growth drivers on the services side continue to remain robust, weakening global demand amid tightening financial conditions remains the key risk for growth outlook for India in the near term. We see India's FY23 GDP growth at 7.1 per cent and FY24 GDP growth at 6 per cent."

"GDP growth slowdown in 2QFY23 was on expected lines. Favourable base effect is slowly waning, higher inflation and weak demand - both internal and external - are having an impact in GDP growth.

"GDP growth in the second half is expected to slow down further. Unless inflation is under control and global demand recovers, it is difficult to sustain high growth momentum."