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In its first advance estimates, CSO expects real GDP growth at 7% YoY in FY23…

…similar to our forecast of 6.9% but slightly higher than the RBI’s 6.8% YoY

* The Central Statistics Office (CSO) has pegged real GDP growth at 7% YoY in FY23E, similar to our forecast of 6.9% but slightly higher than the RBI’s assumption of 6.8% YoY. Real GDP is, therefore, likely to grow 4.5% YoY in 2HFY23. However, CSO forecasts nominal GDP growth at 15.3% YoY in FY23, v/s our estimate of 14.7% YoY.

* Our estimates are broadly in-line with that of the government’s for most of the GDP components. While CSO estimates government consumption to grow 3.1% YoY in FY23 (7.2% YoY in 2HFY23), we expect it to rise 3% YoY (6.9% YoY in 2HFY23). Government expects gross capital formation (GCF) to grow 10.6% YoY (9.4% YoY in 2HFY23) while our forecast for the same stands at 9.8% YoY in FY23 (7.6% YoY in 2HFY23).

* One of the major differences between our forecast and that of the government’s is in export growth, wherein government pegs it at 12.5% YoY (11.9% YoY in 2HFY23) and we peg it at only 7.8% YoY in FY23 (5.4% YoY in 2HFY23). On the contrary, the government appears less optimistic than we are on private consumption expenditure. While CSO estimates it to grow 7.7% YoY in FY23 (-0.2% YoY in 2HFY23), we expect a growth of 11.8% YoY during the year (6.6% in 2HFY23).

* As for GVA, while the government expects it to grow 6.7% YoY, we believe it will grow slightly slower by 6.5% YoY in FY23. Therefore, back calculation suggests that real GVA is likely to grow 4.7% YoY in 2HFY23 v/s our forecast of 4.3% YoY during the same period.

* Within the components of GVA, while our forecasts for agriculture and services are in-line with that of the government’s, the difference lies mainly on the industrial front. While CSO expects industrial activity to grow 4.1% YoY (4.5% YoY in 2HFY23), we expect a growth of only 3.3% YoY in FY23 (2.8% YoY in 2HFY23). This difference is arising from the manufacturing and electricity sectors, wherein the CSO expects a faster growth in both the sectors compared to us.

* Overall, there are no major surprises in the first advance estimates of real GDP/GVA growth for FY23. The numbers are in line with broad expectations. There are, however, two key takeaways:

* The good news comes from the nominal GDP growth front. It effectively implies that the central government has more fiscal space to expand because of higher denominator (in the fiscal deficit as % of GDP). Actual data upto Nov’22 suggests that the government has received 64% of its FY23BE and has spent 62% of its estimated expenditure for the year. Therefore, it is likely that: i) a higher nominal GDP will give the government space to spend more or ii) reduce its fiscal deficit further to 6.1% of GDP in FY23E from an estimated 6.4% of GDP in FY23BE. Our hunch is more towards the latter.

* If India does record a real GDP growth of 7% YoY in FY23, it implies that real per capita GDP will stand at INR0.114m in FY23E, 14% higher than INR0.100m in FY21.

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