GDP growth slows on domestic and external factors

• India’s real gross domestic product (GDP) grew 4.4% on-year in the third quarter this fiscal, slower than 6.3% previous quarter and 5.2% in the same quarter last fiscal.
• Nominal GDP growth stood at 11% (due to slower inflation and real GDP growth), returning to its long-term trend.
• All demand segments saw slower growth, with private consumption, government consumption expenditure, and imports recording the sharpest fall. On the supply side, growth in the manufacturing and services sectors slid, while growth in the agriculture, construction, mining and electricity sectors accelerated.
• Private final consumption expenditure (PFCE) growth slowed to 2.1%, from 8.8% previous quarter, suggesting faltering domestic demand. This resonates with import growth plummeting to 10.9% from 25.9%.
• While export growth also decelerated to 11.3% from 12.3%, the extent of slowdown was less than that of imports. Exports began slowing down quicker than imports in the second quarter, as external demand started weakening earlier than domestic demand.
• Government final consumption expenditure (GFCE) growth decelerated for the second consecutive quarter (-0.8% vs -4.1%), reflecting normalisation of pandemic spend.
• Investment, or gross fixed capital formation (GFCF), growth performed relatively well, albeit slowing to 8.3% from 9.7%. While the centre’s capital expenditure moderated, it picked up for major states.
• On the production side, gross value added (GVA) grew 4.6%, compared with 5.5% previous quarter. Manufacturing growth saw the sharpest fall (-1.1% vs -3.6%), reflecting the hit from exports and waning domestic demand.
• Services growth also slowed from the base effect-driven high growth, but was notably higher than manufacturing growth. Trade, hotels, transport and communication services (THTC) grew 9.7%, compared with 15.6% previous quarter, as they continued the catch-up with the pre-pandemic trend. The share of THTC in GVA stood at 19.3%, compared with 18.4% in the third quarter last fiscal and 20.1% in the same quarter in fiscal 2020 (the corresponding quarter before the pandemic struck).
• Agriculture GVA growth improved to 3.7% from 2.4%, reflecting improving farm prospects.
• Construction GVA growth accelerated to 8.4% from 5.8%, indicating support from the government’s infrastructure push and healthy investment growth.