A provisional estimate of 7.2 per cent growth for 2022-23, announced on Wednesday by the NSO, beats expectations; the same holds true for fourth quarter growth, which came in at 6.1 per cent, against the Reserve Bank of India’s projection of sub-6 per cent. However, the sectoral details, both on the demand and supply side, do reveal chinks which suggest that the current year’s growth could be weighed down by domestic forces, besides global headwinds. Therefore, the RBI would do well to continue with its pause come the June policy, especially with inflation numbers looking less threatening now.

From the demand side, it is apparent that private consumption has not been a big driver of growth. After growing sharply in the first two quarters of FY23, an indication of pent-up demand being released, it flattened to 2.1 per cent in Q3 and 2.9 per cent in Q4 (at constant prices), the absolute figure in Q4 being ₹23.99-lakh crore or 55 per cent of fourth quarter GDP. In sequential terms, private consumption has fallen in Q4 over Q3 — an indication that high inflation and interest rates are eating into purchasing power and confidence. The bright spot is gross fixed capital formation, which was up 8.9 per cent in Q4 (₹15.4-lakh crore), bettering the 7.9 per cent growth in Q3. The rise in capacity utilisation does point to a turnaround in sentiment, but the jury is still out on whether private investment has actually picked up, even as the government and public sector are pushing capex. Private consumption expenditure in constant terms was 58.5 per cent of GDP in FY23, against 58.3 per cent in FY22, while capital formation was up from 32.7 per cent to 34 per cent. Besides capital formation, the fact that net exports are nearly zero but not negative as always, has pushed up the Q4 GDP — but this is a statistical artefact as it does not point to productive forces contributing to growth. A government led capex push may have to continue.

The growth in FY23 has not been broadbased. This is borne out by the 1.3 per cent growth in manufacturing. Post-Covid recovery remains incomplete, with the Ukraine war adding to the disruption. However, it is possible that the worst is over. Fourth quarter manufacturing growth was 4.5 per cent, against negative growth in the preceding two quarters. While agriculture growth at 4 per cent in FY23 looks good, overall growth has been led by trade and hotels (14 per cent) and construction (10 per cent). Manufacturing should bounce back and create quality jobs for growth to look robust.

The RBI Annual Report for 2022-23 flags some concerns. It observes: “Real rural wage growth virtually stagnated in 2022-23 despite a visible uptick in economic activity...” It also points to incomplete post-Covid recovery in the unorganised sector. India is looking at a demand constraint, even as its fundamentals are sound. Demand and supply bottlenecks need to be sorted out.