India’s GDP growth in Q1 (April-June) FY2023 is expected at 15.7 per cent, with a good possibility of an upward bias, according to State Bank of India’s Nowcasting model.

If this materialises, SBI’s economic research department (ERD) expects an upside to RBI’s FY23 GDP projection of 7.2 per cent.

“The significantly high base of FY22 and the low base of FY21 has made the forecasting exercise a difficult one, with a large band around the mean estimates,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, in the bank’s economic research report ‘Ecrowrap’.

The ERD team noted that SBI’s Composite Leading Indicator (CLI) Index (a basket of 41 leading indicators) based on monthly data has shown a significant acceleration.

Of the 41 high frequency leading indicators, 89 per cent showed an acceleration in Q1FY23 compared to 75 per cent acceleration in Q1FY22, indicating that the growth momentum in Q1FY23 was strong and broad-based and is not merely a reflection of a base, the report said.

In Q2FY23, leading indicators have continued to accelerate, with 81 per cent of the indicators for which data is available, showing an uptrend relative to Q1FY22.

“Importantly, the private final consumption expenditure in real terms, that had declined by Rs 4.77 lakh crore in Q1FY21 owing to the Covid-19 pandemic, recovered by 46 per cent in Q1FY22.

“It remains to be seen how the remaining 54 per cent pent-up demand recovered in Q1FY23. We believe it is likely to be more than 54 per cent, indicating a strong recovery in consumer demand, specifically in services which have helped in the likely strong Q1FY23 numbers. This also accounts for 6.8 per cent of the total GDP contribution in Q1FY23,” Ghosh said.

Overall, India seems to have managed the global uncertainty quite well till date, with leading indicators continuing to show an acceleration, he said.

Portfolio flows

The report underscored that there has been a rebound of portfolio capital inflows since July 29, with a capital inflow of around $6.7 billion, with crude declining to below $100 and inflation also declining.

“At this rate, portfolio capital flows in the current fiscal could turn positive from an outflow of $14.7 billion till July 29th. We expect direct investment of around $45 billion, other investment of $30 billion and FII inflows of $15 billion, thereby, leading to an overall balance of payments deficit of $40-45 billion, that could be further scaled down with the evolving situation,” Ghosh said.

However, recently, with the dollar index again moving up to 108, the rupee has witnessed a weakening trend.

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