India’s Q3 GDP Growth Moderates to 4.4%

The first signs of a declining economic activity in India, possibly led by the global cues from North America and Europe, is here. According to data released by the government, India’s GDP growth during October-December moderated to 4.4%, as the impact of growing inflation and high interest rates appear to have kicked in. 

A press note from the Ministry of Statistics and Programme Implementation says, “GDP at Constant (2011-12) Prices in Q3 of FY23 is estimated at ₹40.19 lakh crore, as against ₹38.51 lakh crore a year ago, with a growth of 4.4%. GDP at Current Prices in Q3 is estimated at ₹69.38 lakh crore, as against ₹62.39 lakh crore in Q3 2021-22 – a growth of 11.2%.” 

Most sectors are down, even the high profile ones

However, the government continues to hold strong with its annual GDP prediction, expecting it to grow at 7% while also sharing that economic growth for the last financial year had been revised upwards to 9.1% from 8.7% earlier. The GDP had moderated to 6.3% in the last quarter from 13.5% in the first quarter of FY23 largely due to pandemic-related statistical distortions.

Giving further details, the note said the manufacturing sector contracted by 1.1% over the previous quarter when it had contracted 3.6%. Meanwhile, the farm sector recorded a growth of 3.7% in Q3 as against 2.4% in Q2. The mining sector surged to 3.7% as against a negative growth of 0.4% in the previous quarter, while electricity and construction sectors grew by 8.2% and 8.4% respectively as against 6% and 5.8% a quarter ago. 

Contact-intensive sectors such as hotels and transportation saw a sharp decline to 9.7% as compared to 15.6% in the earlier quarter. This despite the fact that holiday travel is supposed to have picked up in the last quarter due to the start of the holiday season. Growth in real estate also shrunk to 5.8% compared to 7.1% a quarter ago while defense grew by 2% as against 5.6% in the previous quarter. 

Blame it on interest rate hikes and inflation

Market experts were unanimous about the major cause of lower GDP growth. They said the RBI’s aggressive interest rate hikes for taming inflationary pressures had resulted in less money with consumers, which resulted in lower manufacturing and lower consumption of raw material, resulting in a cascading effect.  

However, there was also a slowdown in exports due to the global slowdown, with consumer demand getting dented due to the same rate hikes, this time by the major central banks of global economies led by the United States. In fact, a poll conducted by Reuters had suggested a slowing down of the economy with most economists predicting an annual growth of 6%, which is a full 100 basis points lower than government’s current estimates. 

In fact, some economists are hinting at a GDP growth rate lower than 6% with state-owned State Bank of India claiming that as many as 30 high frequency indicators did not appear robust enough as they were in the previous quarters. It remains to be seen how the country copes with the global slowdown over the next few months.