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The global economic slowdown and recession fears have raised concerns for economic growth in Asian countries, and the recent India GDP data shows that growth slowed in the last quarter of 2022. While the 4.4% rise during the quarter that ended December 2022 was in line with the central bank’s expectation, it failed to meet estimates of a Bloomberg survey (4.7%) and a Reuters poll (4.6%).
Over the course of 2022, India GDP growth has slowed substantially as pandemic recovery-driven gains abate. For the first fiscal quarter from April to June, India posted a growth of 13.2%, and in the second quarter, the figure dropped to 6.2%.
The Indian government is expecting a GDP growth of 7% for the fiscal year which ends in March 2023. Based on preliminary calculations of all the quarters in 2022, India has surpassed China’s 3% growth for the past year.
What’s ailing India GDP growth?
The effects of a global economic slowdown have started showing across Asian countries. India’s manufacturing contracted by 1.1% during the quarter that ended December 2022, the second straight quarter when output fell. Meanwhile, growth in private consumption slowed to 2.1% compared to 8.8% in the previous quarter.
Compared to China, India has a meagre share in global exports. Exports of goods and services accounted for 21.4% of India’s GDP in 2021, as per the World Bank. The South Asian economy has also been fairly shielded from the war in Ukraine, and the high inflation in the West.
India’s inflation accelerated to 6.52% in January 2023, which is a tad higher than the central bank’s upper limit of 6%. The Reserve Bank of India is expected to raise the key interest rates by another 25bps in the upcoming monetary policy session, which will take the rate to 6.75% in the coming months.
It remains to be seen how this impacts the economic growth of the country, as consumer spending, which makes up 60% of India’s GDP, will decline as borrowing costs rise.
“Our forecasts show that India will be the fastest growing out of all G20 countries this year. However, this is primarily because of weakness in other parts of the world, and only partly thanks to the strength of India’s economy,” Alexandra Hermann, Lead Economist at Oxford Economics, said in a note.
India’s Chief Economic Advisor V. Anantha Nageswaran has said that the country can comfortably achieve its 7% growth target for the fiscal year ending March 2023 as growth in the current and final quarter needs to come in at 4%-4.1%.
Following the release of the latest growth figures, Moody’s Investors Service updated its 2023 growth outlook for India to 5.5%, from its previous estimation of 4.8%, citing the higher capital expenditure by the government in its yearly budget and resilient economic activity.
“We believe India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade,” says Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India. “Consequently, India is gaining power in the world order, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”
