India's GDP growth up by 13.5% in first quarter, falls short of RBI expectations

A vegetable seller counts Indian rupee notes in Mumbai on May 9, 2022. Photo: Indranil Mukherjee/AFP

New Delhi: The government is expecting the economy to grow at 7-7.5 per cent in 2022-23, in line with its projections made at the beginning of this financial year.

India registered a growth of 8.7 per cent in 2021-22.

"We remain on course to meet the 7.4 per cent. We expect to achieve. This does not really reflect on what is expected to be annual real GDP growth. So, 7-7.5 per cent in that range. 7.4 per cent is what the IMF has predicted," Finance Secretary T V Somanathan said on Wednesday.

He was briefing reporters after the release of the GDP numbers, which showed the economy grew by 13.5 per cent in the April-June quarter, much below the RBI's projection of 16.2 per cent.

"I am not going to make a prediction more accurate than the RBI...but I am saying that today's figure in no way is throwing us off course or what was expected and what we continue to expect. It is fully consistent with that expectation of somewhere in the region of 7-7.5 per cent real GDP growth. It is fully consistent with that," he said.

So, he said, this is very consistent with the annual estimates by international organisations as well as from the Reserve Bank of India.

The RBI has projected a growth rate of 7.2 per cent for the current financial year.

He further said the real GDP further increased to Rs 36.85 lakh crore in Q1 of FY 2022-23, registering a year-on-year rise of 13.5 per cent and growth of 3.8 per cent over Q1 of FY 2019-20.

With a 13.5 per cent growth rate, the GDP has recovered the pre-pandemic output and gone beyond by near 4 per cent, he said.

Sharing his perspective on the latest GDP data, Economic Affairs Secretary Ajay Seth said contact intensive services and construction witnessed an annual growth of 25.7 per cent and 16.8 per cent, respectively, in the first quarter of 2022-23.

Gross fixed capital formation (GFCF) as a percentage of GDP (at 2011-12 prices) stood at 34.7 per cent, the highest in the first quarter of the past 10 years, supported by various reforms and measures taken by the government leading to the reinvigoration of the capex cycle and crowding-in of private investment, Seth said.

The government has continued to support the investment activity with capital expenditure reaching Rs 1.75 lakh crore during the first quarter of 2022-23, which is 23.4 per cent of the budget estimate and 57 per cent higher as compared to the corresponding period of the last year, he said.

Fixed capital formation and private consumption are very strong in the first quarter and that augurs well for the economy, he added.

With relatively high growth and low inflation, Seth said, India, among the major peer economies, has faced less of a trade-off between growth and inflation.

India's retail inflation (CPI-C) has eased to a five-month low of 6.71 per cent in July 2022.

On the second quarter outlook, he said the robust performance of High-frequency indicators in July and August 2022 indicates sustained growth in the July-September period.

Manufacturing PMI in July 2022 was at an eight-month high of 56.4, supported by growth in new business orders and output. Services activity also robustly remained in the expansionary zone in July 2022 with a PMI services reading of 55.5, he said.

The double-digit growth in total bank credit and non-food credit continued in July 2022 from Q1 FY 2022-23, with the indicators registering growth rates of 13.4 per cent and 13.9 per cent, respectively, driven by an uptick in credit flows to industry and services, he noted.

On headwinds for the Indian economy in the second half, Seth said, the slowdown in exports and elevated level of crude oil are going to be major challenges.

However, Somanathan said, the rising interest rate may not deter capital investment by the private sector.

India's private sector is not very interest rate sensitive, the finance secretary said, adding 75-100 basis points may not deter private investment.

On the impact of expected moderation in the Chinese economy, Somanathan said it is such a big economy and its slowdown will affect every economy that trades with the Asian giant.

"India has substantial trade with China but this is a case where our trade deficit operates in our favour because we are net importers, not exporters. So, unlike other countries, the Chinese slowdown is less likely to affect our exports because we are actually huge net importers. So, for us the issue is of less significance than for certain other economies in the region," he said.

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