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Real GDP grows 4.1% YoY in 4QFY22

The Indian economy grew 8.7% in FY22, up 1.5% from FY20 levels

* Real GDP/GVA grew 4.1%/3.9% YoY in 4QFY22 (v/s our forecast of 4.1%/2.8% and the Bloomberg consensus of 3.9%/3.5%), slower than the 4.8%/4.1% predicted by the Government of India (GoI). It implies that real GDP/GVA rose 8.7%/8.1% in FY22, 1.5%/2.9% higher than FY20 levels, but lower than the GoI’s forecast of 8.9%/8.3%.

* The details suggest that total consumption growth weakened to just 2.3% YoY in 4QFY22, dragged down by marginal growth of 1.8% YoY in private final consumption expenditure (PFCE) as compared to 6.5%/7.4% in 4QFY21/3QFY22. In contrast, government final consumption expenditure (GFCE) rose 4.8% in 4Q, better than 3% in 3QFY22, but pulled down by the base effect (up 29% YoY in 4QFY21). Real investments (gross capital fixed formation or GFCF + change in inventories) grew 9.4% YoY in 4Q, while external trade deducted one percentage point from real GDP growth in 4QFY22, as real imports grew faster than real exports (18% v/s 16.9%).

* Better-than-expected growth in real GVA was driven by better agricultural and industrial sectors (including construction), while the services sector posted a slower than predicted growth in 4QFY22. The farm sector grew at an eight-quarter high of 4.1% YoY, while the manufacturing sector contracted just 0.2% YoY v/s a 15.2%/0.3% growth in 4QFY21/3QFY22. Growth in the services sector weakened considerably to 5.5% YoY in 4Q v/s 8.1% in 3QFY22.

* Due to GDP/GVA deflator of 10.4%/10.9% in 4QFY22, nominal GDP/GVA picked up by ~15% YoY each. It implies that nominal GDP/GVA grew 18.2%/19.5% in FY22, similar to GoI’s forecasts.

* India’s investments stood at 32.5% of GDP in 4QFY22, similar to that in 4QFY21, but higher than 28.7% of GDP in 3QFY22. Using quarterly data on net exports, it suggests that implied gross domestic savings (GDS) rose to 29.6% of GDP in 4QFY22, lower than 30.3% of GDP in 4QFY21. It means that India’s implied GDS stood at 28.7% of GDP in FY22 – the highest in the past six years – v/s 27.5% of GDP each in the preceding two fiscals.

* Overall, there were no shocks in the GDP data for 4QFY22. Therefore, our broad narrative remains unchanged too. We continue to believe that consumption may remain weak in the coming quarters as a result of a weak household sector. We pencil in a real GDP growth forecast of 6-6.5% YoY in FY23 as compared to the RBI’s forecast of 7.2%.

I. Real GDP growth was 4.1% in 4QFY22…

Real GDP expands 4.1% YoY in 4QFY22: In line with our forecasts and slightly higher than the Bloomberg consensus, real GDP grew 4.1% YoY in 4QFY22, but slower than 4.8% predicted by the GoI. It implies that real GDP grew 8.7% in FY22, 1.5% higher than FY20 levels, but lower than the GoI’s forecast of 8.9% (refer to Exhibit 1-2).

Consumption weakened, though investments grew decently in 4QFY22: The details suggest that total consumption growth weakened to just 2.3% YoY in 4QFY22, dragged down by marginal growth of 1.8% YoY in PFCE as compared to 6.5%/7.4% in 4QFY21/3QFY22. In contrast, GFCE rose 4.8% in 4Q, better than 3% in 3QFY22, but pulled down by the base effect (up 29% YoY in 4QFY21). Real investments grew 9.4% YoY in 4Q, while external trade deducted one percentage point from real GDP growth in 4QFY22, as real imports grew faster than real exports (18% v/s 16.9%). On a full-year basis, PFCE grew 7.9% in FY22 v/s a fall of 6% in FY21, and GFCE grew 2.6%, following a growth of 3.6% in FY21. Total investments increased by 21.7% in FY22, after declining by 11.4% in FY21. Thus, PFCE was up 1.4% vis-à-vis FY20, while GFCE/GCF was up 6.3%/7.8% (refer to Exhibit 3-4).

II. …and GVA growth too was higher-than-expected

Real GVA grew 3.9% YoY in 4QFY22…: Real GVA grew faster than our/Bloomberg forecasts at 3.9% YoY in 4QFY22, but slightly slower than the GoI’s prediction of 4.1%. It implies that real GVA increased by 8.1% in FY22, 2.9% higher than FY20 levels, but lower than the GoI’s forecast of 8.3% (refer to Exhibit 5-6).

…led by better farm and industrial activity: Better-than-expected growth in real GVA was driven by better agricultural and industrial sectors (including construction), while the services sector posted a slower than predicted growth in 4QFY22. The farm sector grew at an eight-quarter high of 4.1% YoY, while the manufacturing sector contracted just 0.2% YoY v/s a 15.2%/0.3% growth in 4QFY21/3QFY22. Growth in the services sector weakened considerably to 5.5% YoY in 4Q v/s 8.1% in 3QFY22 (refer to Exhibit 7-8).

III. India’s domestic savings picked up in FY22:

Nominal GDP/GVA up 19.5%/18.2% in FY22: Due to GDP/GVA deflator of 10.4%/10.9% in 4QFY22, nominal GDP/GVA picked up by ~15% YoY each. It implies that nominal GDP/GVA grew 18.2%/19.5% in FY22, similar to GoI’s forecasts.

Nominal GDP/GVA up 19.5%/18.2% in FY22: India’s investments stood at 32.5% of GDP in 4QFY22, similar to that in 4QFY21, but higher than 28.7% of GDP in 3QFY22. Using quarterly data on net exports, it suggests that implied GDS rose to 29.6% of GDP in 4QFY22, lower than 30.3% of GDP in 4QFY21. It means that India’s implied GDS stood at 28.7% of GDP in FY22 – the highest in the past six years – v/s 27.5% of GDP each in the preceding two fiscals (refer to Exhibit 9-10).

IV. Expect real GDP to grow by 6-6.5% YoY in FY23

Overall, there were no shocks in the GDP data for 4QFY22. Therefore, our broad narrative remains unchanged too. We continue to believe that consumption may remain weak in the coming quarters as a result of a weak household sector. We pencil in a real GDP growth forecast of 6-6.5% YoY in FY23 as compared to the RBI’s forecast of 7.2%.

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