Gross Domestic Product (GDP) growth numbers for the October-December quarter showed that successive interest rates hikes have affected domestic demand dragging the quarterly growth down to 4.4 per cent. Economists believe that the reasons affecting growth in third quarter are likely to affect the economy in next fiscal as well.

Data showed that agriculture has been best performer during three quarters rising to 3.7 per cent in Q3 (October-December) from 2.4 per cent in Q2 (July-September), and from 2.5 per cent in Q1 (April-June) of FY 23. Industry recovered from 2.4 per cent in Q3 from de-growth of 0.4 per cent of Q2 but less than 9.6 per cent growth in Q1. Services sector was on continuous decline and it saw a growth of 6.2 per cent in Q3 from 9.4 per cent in Q2 and 16.3 per cent in Q1.

Gloomy outlook

Chief Economic Advisor VV Anantha Nageswaran remained optimistic about growth scenario in this and the next. However, he said that India has to be prepared to deal with El Nino and other weather-related uncertainties. Listing downside risks, he said, “Risks to the current account balance stem from multiple sources.” Explaining further, he said that strong domestic demand amidst high commodity prices will increase India’s total import bill. These may be exacerbated by plateauing export growth on account of slackening global demand. Further, entrenched inflation may prolong the tightening cycle and therefore, borrowing costs may stay “higher for longer”.

Rajni Sinha, Chief Economist, Care Edge Group, said going ahead, as the external demand conditions remain weak, it is critical for domestic demand to accelerate. Improving rural demand and rising rural wages are the positive developments for aggregate demand. However, there is expected to be some fizzling out of the pent up demand seen in the last few quarters. “Government focus on capex and improving intent of private sector to invest should be supportive of investment demand. We expect GDP growth to moderate to 6.1 per cent in FY24,” she said.

Dipti Deshpande, Principal Economist with CRISIL felt that the third quarter also reflected waning momentum in domestic consumption demand, possibly coming from sectors that were laggards in catching up post the pandemic and as a result had seen a surge in recent quarters. 

Risky year ahead

“Some of these factors will continue to be a drag on growth going into next fiscal. Our GDP growth estimate of 6 per cent for next fiscal primarily accounts for the impact of slower global growth and higher interest rates biting into growth for some interest rate sensitive sectors. A sharper-than-expected global growth slowdown and forecasts of an El Nino that can disturb Indian monsoons are the other risks to watch out for,” she said.

Vivek Rathi, Director (Research) with Knight Frank India says in the coming months, hardening consumer inflation trajectory which could dent consumer disposable income however poses challenges to economic growth. However, “despite the downside risks of inflation, amidst the global economic uncertainty, wherein the key economies are poised for a slowdown, India’s economic growth is positioned to grow at the stronger pace,” he said.

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