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Rebounding GFCF a positive in Q4FY22; will take the growth baton from exports in FY23

* India’s nominal GDP grew 19.5% in FY22, but real GDP was reported to have grown a modest (albeit world-beating) 8.7%. In Q4FY22, nominal GDP grew 14.9% YoY, but real GDP reportedly grew just 4.1% YoY, with real PCE (private consumption expenditure) decelerating to only 1.8% YoY growth. India’s GDP deflators (and their components) remain statistically problematic: the PCE deflator for Q4FY22 rose 10.5% YoY, although CPI inflation (which should be closely linked to PCE inflation) was at a more modest 6.3% YoY during the quarter. Real PCE was probably underestimated because the PCE deflator was incorrectly measured.

* Fixed investment spending (+5.1% YoY) and government consumption (+4.8% YoY) were more robust in Q4FY22. Nominal exports of goods and services remained the key source of dynamism, growing 30.7% YoY, while inflation-adjusted exports grew 16.9% YoY and inflation-adjusted imports were up 18% YoY. The inflation-adjusted net exports of goods and services reported a deficit of 5% of GDP in Q4FY22 (far wider than the nominal net export deficit of 2.5% of GDP). Not as egregious as in previous quarters, but an excessively large inflation-adjusted net export deficit subtracted 2.5pp from real GDP in Q4FY22.

* The fiscal deficit for FY22 was 6.7% of GDP, lower than the revised estimate of 6.9%, but higher than our Apr’22 estimate of 6.4% of GDP. Corporate and income tax revenue for FY22 were 12.1% and 9.5% above the revised official estimate (from 1st Feb’22), but well below the numbers published in newspaper reports in Apr’22 quoting finance ministry officials (Link) (some of which seems to have been recognized in Apr’22 rather than Mar’22, with corporate and income tax revenue up 75% and 59% YoY respectively in Apr’22). Nonetheless, the budgeted revenue from corporate and income tax in FY23 is respectively just 1.1% and 3.2% higher than the reported FY22 figures. They will still be far exceeded, and the government’s borrowing requirement will remain lower than the budgeted figures. The crowding-in of private investment (which began in Q4FY22) will gather steady momentum – helped by globallycompetitive corporate tax rates and labour-market flexibility, complemented by the PLI scheme and a broadening array of FTAs. Export-oriented fixed-investment spending will thus be the key to generating a virtuous circle of growth – 8.5% real GDP growth in FY23, and 9% in FY24. The cushion provided by under-estimation of real GDP (because of the erroneous net-export deflator) implies that the risks to growth will be to the upside.

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