NSO pegs growth this fiscal at 7%, and for the second half at 4.5%

• The National Statistical Office (NSO) released today the first advance estimate (FAE) for gross domestic product (GDP) in fiscal 2023. Real GDP growth is pegged at 7% on-year for this year — same as our forecast — compared with 8.7% in fiscal 2022
• Between January and May each year, India gets to see two ‘advance’ and one ‘provisional’ estimate of gross domestic product (GDP) growth, as more data becomes available. But the crucial number will be in the May ‘provisional estimate’, considered more reliable and with a longer shelf life, as the next revision (called the first revised estimates) will be available only in calendar 2023
• The primary purpose of FAE is to provide an estimate for nominal GDP growth for the upcoming Union Budget, as it is used for preparing revised fiscal deficit number for current fiscal year. FAE pegs nominal GDP at 15.4% for current fiscal, against 11.1% estimated during Budget 2022
• The upward revision in nominal GDP has given the government scope to increase fiscal deficit, while maintaining its proportion to GDP at budget target. Given the latest update on nominal GDP, the government can increase fiscal deficit by Rs 97,080 crore, while sticking to budget target of fiscal deficit at 6.4% of GDP. This will help accommodate additional capital expenditure and subsidies incurred this year. Both fertiliser and food subsidy allocations were revised up significantly soon after the Budget announcement
• Based on the FAE, real GDP growth in second half this fiscal is expected at 4.5% on-year, down from 9.7% in the first half
• The drags would be agriculture (2.7% growth in the second half versus 4.5% in the first), and some industrial components (construction: 7.3% vs 11.5%; electricity: 7.9% vs 10%)
• Notably, all components of services are expected to see slower growth (trade, hotels, transport and communication services (THTC): 9.4% vs 19.5%; financial real estate and professional services: 4.2% vs 8.2%); public administration, defence and other services (1.7% vs 15.3%). This would be a result of fading base effect and progressing catch up to pre-Covid levels. However, THTC will remain slowest to recover to pre-pandemic levels (see chart below)
• Manufacturing growth is seen rising mildly in second half (3% vs 0.1%), as is mining (2.6% vs 2.2%)
• A slowdown is expected in all demand components with exception of government consumption spending. Private consumption is expected to decline 0.2% on-year in the second half, after growing 17.2% in first. Private consumption remains slowest to recover to pre-pandemic levels.
• Fixed investment is expected to slow to 8.4% in second half from 15.0%. Among external trade components, exports (11.9% vs 13.0%) are expected to slow more than imports (12.2% vs 30.9%). However, government spending is expected to rise (7.2% vs -1.3%).