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The Indian economy picks up speed with year-on-year growth of 6.1% in the first quarter of 2023. This marks a steady growth of the economy in recent quarters. In the quarters October-December 2022 and July-September 2022, India recorded growth rates of 4.5% and 6.2%, respectively.
This brings annual expansion for the South Asian economy to 7.2% in fiscal year 22-23. In the previous fiscal year, India recorded a growth of 9.1%. In other words, India remains one of the fastest-growing emerging economies, especially with China’s stuttering recovery.
Inflation was considered one of the hurdles to India’s growth. However, the inflation rate dropped to 4.7% in April from 5.66% in the previous month, making it the lowest since October 2021. This remains within the Reserve Bank of India’s (RBI) tolerance band of 2% to 6%.
The central bank has raised its benchmark interest rate by 250 basis points since May last year, keeping it at 6.5%. Economists expect no further changes in 2023.
The RBI forecasts India to grow 6.5% for the fiscal year ending in March 2024.
What pushed India’s growth?
The service sector, which makes up more than half of India’s GDP, was the main driver of the economy in the fiscal year that just ended.
Financial, real estate and professional services expanded by 7.1%, up from 4.7% in FY21-22. Trade, hotels, transport, communication and services related to broadcasting also grew by 14%, a moderate growth compared to the previous year’s 13.8%.
However, construction slowed to 10% growth from 14.8% registered the previous year. Also, manufacturing was sluggish with just 1.3% growth over the whole year, compared with 11.1% in the previous fiscal year.
Given the global economic slowdown and volatility in financial markets, economists warn that this could have a negative impact on growth prospects in the coming quarters.
What is more, the rise of weather phenomenon El Nino could cause inadequate rains for crops such as rice and corn, affecting the rural economy which accounts for a big portion of the country’s GDP. Also, creating jobs for the India’s large unemployed population stays a big challenge. The unemployment rate in April jumped to 8.11%, an increase for the fourth consecutive month.
“Our view is that 2023 will be a year of adjustments for India; growth may slow down but balance out, and this could lead the way to a more sustainable recovery, probably driven by a revival in manufacturing and investments, generating several opportunities for investors,” says Amundi Asset Management.
