The GDP numbers released today for the third quarter (Q3) of the year and the revised estimates for FY23 (financial year 2023) have by and large been on expected lines. For the year, the NSO has stuck to 7 per cent, which means there is no change from the preliminary estimate made earlier. For the third quarter, growth is at 4.4 per cent, as projected by the RBI. (The Bank of Baroda estimate was 4.6 per cent).
Growth in Q3 has been driven mainly by the services sector. First, the component including trade, hotels, transport etc. has grown by 9.7 per cent on top of 9.2 per cent last year. This is due to pent-up demand in the segment once the sector was fully opened up from April 2022 onwards, which is also reflected in the PMI numbers. The third quarter coincides with the post-harvest and festival season, which supported this growth. Higher GST collections also supported this growth.
Second, the financial and real estate component grew by 5.8 per cent, which could have been higher in case households had saved more in bank deposits. Yet, growth here has been higher than last year. These two trends have countered the slowdown in growth in the public administration, defence and other services segment which grew by just 2 per cent as the government was cautious in its revenue expenditure. In fact, the growth in GVA was 4.6 per cent while that in GDP was lower at 4.4 per cent as the net taxes (taxes minus subsidies) were negative since the subsidy bill rose due to higher allocations for food and fertilisers.
A setback was expected is the manufacturing sector. But -1.1 per cent is lower than expectations. This can be attributed to depressed profit and loss accounts of companies, as profits had come down due to higher input costs which came in the way of value addition in this sector. This year, the growth is likely to be just 0.6 per cent. This has been the Achilles heel of our growth story. Jobs will be created only if this sector grows at a robust pace on a sustained basis. Sluggish growth in consumption has come in the way as seen by negative to low growth in the consumer goods segment all through the year.
Construction has been a saviour in this scenario with growth of 8.4 per cent due to the smart demand for housing that has been backed by bank credit too. Also, the government push on infra, especially roads, has helped to hasten the pace of growth. Agriculture has added to the growth though there are concerns about the rabi crop given the heat wave. For the year, the NSO is looking at 3.3 per cent growth, which can slip if the wheat crop is affected, as it happened last year.
During this quarter, there has been a decline in the share of consumption in GDP from 65.1 per cent to 63.3 per cent. Higher inflation too has come in the way of growth in consumption as incomes have not been increasing in a commensurate manner. Also, the gross fixed capital formation rate has increased only marginally from 26.6 per cent to 26.8 per cent. While the government has been doing its bit on investment by spending where required, the private sector has been slow to match the same for the last 3-4 years. This is reflected in the data on capital formation. Ideally, it should have increased at a faster rate. This is also seen in the pattern of growth in bank credit, where retail — rather than the corporate segment — has been the driver.
The RBI can take heart at these numbers as they are on expected lines. It can continue to look more closely at inflation, which the MPC is expected to target. The present heat wave is disturbing from the inflation perspective. It has the potential to keep the CPI inflation in the region above 6 per cent for a longer period of time if the wheat crop registers a decline in production. The RBI, however, need not revisit the GDP growth forecasts it had for FY24 — which was at 6.4 per cent — as the figures for FY23 have not really changed. The government and the Union budget too would take heart from this number for FY23 as no further alterations have to be made on the assumptions made when working on the fiscal arithmetic for FY24.
No comments:
Post a Comment