Q2 GDP growth slows to 6.3%; Centre hopeful of 6.8-7% growth for full fiscal

India’s economy slowed in the September quarter (Q2FY23) as the GDP growth rate fell to 6.3 percent from 8.4 percent in the same period last year. Growth in the June quarter (Q1) was 13.5 percent.

Despite the decline in the second quarter, V Chief Economic Adviser Anantha Nageswaran said he was confident the economy would grow by 6.8-7 percent this fiscal year, driven by domestic demand. Domestic inflation is expected to moderate further on the back of lower global commodity prices and expectations of a good spring harvest. The CEA said the corporate earnings outlook is improving as price pressures moderate and the supply chain improves. However, he warned that financial conditions in advanced economies still pose a risk in the near term.

negative risks

Three factors appear to be depressing growth – waning positive underlying effect, pressure on domestic and global demand, and higher inflation. Although there are concerns that the growth rate will slow further in the remaining two quarters, various agencies still estimate the growth rate to be 6.5-7 percent for the full budget.

Swati Arora, an economist at HDFC Bank, said that the GDP growth for the second quarter was largely supported by connection-intensive services while the manufacturing sector was a drag. “Gross domestic product is expected to grow by 6.8 percent in FY23 with downside risks arising from slowing global growth and tightening financial conditions,” she said.

According to Rajani Sinha, Chief Economist, CareEdge, the most important aspect will be a further increase in domestic demand as the external environment remains challenging. Recovery in the private capital expenditure cycle will depend on continued improvement in the domestic demand scenario. The decline in global commodity prices should provide relief to the manufacturing sector in the coming quarters. “We expect GDP to grow by 6.9 percent for the full fiscal year,” she said.

fiscal deficit

The fiscal deficit during the period from April to October 2022 touched 46 percent of the budget estimate (BE) compared to 36 percent in the same period last year. Experts say that although the deficit is expected to exceed BE in value terms, it is unlikely to exceed it in percentage terms. The government has targeted reducing the deficit to more than 16.61 crore or 6.4 per cent of GDP in this year’s budget.

Aditi Nayar, Chief Economist at ICRA said, based on available trends, total tax revenue in FY23 is expected to exceed BE by a whopping ₹ 3.1-lakh crores while expenditures are likely to rise by up to ₹ 3-lakh crores.

“Taking into account the potential estimated additional expenditures in FY23, we estimate the extent of the fiscal deficit overrun at a modest level of ₹ 1-lakh crores, given the significant rise seen in non-selective tax revenue as well as expected savings under other heads of expenditure. It said the fiscal deficit in FY23 is unlikely to exceed 6.4 percent of budgeted GDP, on the basis of higher nominal GDP (ICRA forecast: +15 percent) than budgeted (+9.1 percent). ).