Though it shows a marked loss of momentum in India’s real growth to 4.4 per cent for Q3 FY23 from 6.3 per cent in Q2, the latest quarterly economic data from the statistics office doesn’t come as much of a surprise. With the performance of listed companies for Q3 telegraphing a clear slowdown, forecasters had already toned down their expectations to the 4.4-5 per cent range. Whether India can still get to the 7 per cent forecast for FY23 and build on it next fiscal now poses the real challenge.   

Third quarter data show that while primary sectors such as agriculture (3.7 per cent growth in Q3 against 2.4 per cent in Q2), mining (3.7 per cent versus a negative 0.4 per cent) and utilities (8.2 per cent versus 6 per cent) did well, sectors critical to employment and income generation – manufacturing (1.1 per cent contraction), and services such as trade, hotels and transport (9.7 per cent against 15.6 per cent) lost speed. Continued margin compression reported by listed companies suggests that high input cost inflation dragged down growth for industry this quarter. That manufacturing GVA continued to decline despite the let-up in the input cost inflation, is a sign that producers weren’t able to pass on inflationary pressures to end-consumers.

Weak demand is also evident from the sharp deceleration in private consumption from over 20 per cent growth in Q1 to barely 2 per cent in Q3. This supports the theory that post-pandemic recovery in incomes has been patchy. In high-contact services such as trade, hotels and transport, the post-Covid rebound seems to be winding down. Minuscule growth in public administration expenses at 2 per cent has also been a factor in the Q3 slowdown. But this isn’t a negative given the Centre’s conscious focus on capex over revenue spending, while striving to stick to its own red line on the fiscal deficit. On a positive note though, the second advance estimates (also released with the quarterly data) showed India’s absolute GDP numbers for FY22 and FY23 turning out better than previously thought. They showed that the real economy grew by a healthy 9.1 per cent in FY22, against 8.7 per cent estimated earlier. Despite this higher base, the CSO expects India to end FY23 with 7 per cent real GDP growth.

A key takeaway is that while the main sectors of the economy have put the pandemic effect behind them, sustained growth on a normalised base from here, will depend on the private sector regaining its animal spirits. The Centre is already doing all it can to provide a stimulus to growth, by rolling out investment-friendly policies such as PLIs and ratcheting up its capex to the extent that its budgetary constraints allow. Still, gross fixed capital formation has seen its growth slide from 20 per cent in Q1 FY23 to 8.3 per cent by Q3. As growth now clearly depends on the private sector doubling down on its investment plans, cost of capital can play a big role in investing decisions. One hopes that the Monetary Policy Committee will weigh this in its upcoming rate decisions.