In the previous quarter, Indian economy had shown fastest pace of growth in a year. However, the GDP numbers came in at 13.7%, which was below expectations and fueled fears of slowdown in growth.
The GDP figure assumes significance amid widespread speculations of a global recession as economies struggle to cope with after effects of Covid pandemic and also that of the uncertainties created by Russia-Ukraine war.
Amid such challenges, Indian economy is being looked upon as the one showing resilience amid persistent global headwinds.
Although business surveys indicated weakening economic activity in most major economies, where central banks are responding to soaring inflation with higher interest rates, business sentiment has remained relatively strong in India.
Last week, the finance ministry said a global slowdown might dampen the country’s export businesses outlook.
Experts believe that even if India witnesses slowdown in growth, it would be consistent with a much deeper global slowdown.
How the quarter has been
During the September quarter, service sector witnessed pent-up post-Covid demand for hotels, restaurants and transport. However, retail inflation continued to be a major concern.
The consumer price index based retail inflation had surged to 5-month high of 7.41% in September as food and and fuel prices jumped.
As the RBI failed to ensure inflation remained at 4% with a margin of 2% on either side for three consecutive quarters, it has now sent a report to the government detailing the reasons for the failure and steps it is taking to bring CPI in the target range.
The inflation numbers have remained over RBI’s target range of 2%-6% since January this year.
To ease economic situation, the Centre stepped up capital expenditure, spending Rs 1.67 lakh crore ($20.45 billion) over the three months, more than 40% higher than a year ago.
Consumption has also improved since the quarter captures part of the three-month long festive season. This provides an indication of how resilient demand is in the face of elevated price gains and higher borrowing costs.
However, dwindling exports due to a slowdown in global activity and higher interest rates may hurt economic activity in subsequent quarters.
Tighter financial conditions globally are stoking recession fears and are hurting the nation’s external finances. India’s merchandise exports, that surged by almost 200% in April 2021, have now fizzled, posting an almost 17% contraction in October.
Uneven monsoon rains also posed challenges, driving crops prices higher and offsetting the benefits of declining commodity prices.
While many economists foresee a slowing momentum in a nation known for its world-beating growth, Soumya Kanti Ghosh, chief economist at the State Bank of India is withholding judgment. “It may be better to look through the GDP headline numbers for a couple of quarters before arriving at a definitive conclusion about the growth trajectory.”
In its monetary policy announcement on September 30, the RBI had said real GDP growth for 2022-23 is projected at 7%, with July-September at 6.3%; October-December at 4.6%; and January-March at 4.6%, and risks broadly balanced.
For the first quarter of 2023-24, the RBI has projected the economic growth at 7.2%.
Meanwhile, the RBI raised its key policy interest rate to 5.9% from 4.0% in May and is widely expected to add another 60 basis points by the end of March.
The RBI, which has raised its benchmark rate by 190 basis point this year and brought it back to pre-pandemic levels, is expected to stay hawkish at the monetary policy review next week as inflation continues to be above 6%.