Macro Watch
Update on Data Trends | March 2023
Q3 FY23 GDP
In line with RBI’s projections, India’s real GDP grew 4.4% on-year in the quarter ended Dec’22. This was slower than the 6.3% growth recorded the previous quarter, on account of slower growth across all demand segments.
Private Final Consumption Expenditure (PFCE) witnessed the sharpest fall in growth, at 2.1%, from 8.8% in the previous quarter. Barring the Covid-19 period, such low growth was last seen in Q3 FY15. A slowdown in import growth to 10.9% from 25.9% with slowing PFCE further suggests dampening of domestic demand. Recent high frequency data also suggests a K-shaped recovery in demand.
Investment activity i.e. Gross Fixed Capital Formation (GFCF) recorded a healthy growth, even as it slowed to 8.3% compared to 9.7% the previous quarter. An increase in the budgetary capex to 28% (YoY) for FY24 from 14% in FY23 is expected to improve the GFCF growth in the next fiscal. Private sector capex too, is expected kick-in on account of rise in capacity utilization (CU) in manufacturing sector (74.4% in Q3 FY23 vs 72.4% in Q2 FY23) and new investment projects announced (Rs. 6.8 lakh crores in Q3 FY23 vs Rs. 4.4 lakh crores in Q2 FY23).
On the supply side, agriculture output grew 3.7% on-year. Rabi acreage exceeds last year’s area by 3.3% . As per the second advance estimate, total foodgrain production in the country is estimated at record 3235.54 lakh tonnes which is higher by 79.38 lakh tonnes as compared to previous fiscal.
Services sector growth slowed to 6.2%, with trade, hotels, transport and communication services (THTC) growing 9.7% compared to 15.6% the previous quarter.
RBI expects real GDP to grow by 7% on-year in FY23 and 6.4% in FY24. While the repo rate has been increased by 250 bps since Jan’22, the weighted average lending rate on fresh rupee loans by SCBs has only gone up by 118 bps. Further transmission of rate hikes and a weak global economic environment is likely to weigh down on domestic growth. Consensus forecasts suggest growth in FY24 to come in at ~6%.
Source: TruBoard Research, CMIE
Banking
- Average daily liquidity under LAF (including outstanding operations) stood at a surplus of Rs. 709,000 crore in Feb’23 vs Rs. 831,000 crore in
Jan’23. The impact of tightening liquidity conditions can be seen in call money rates (weighted average) inching up to 6.38% in Feb’23 compared
to 6.16% in Jan’23. Weighted average lending rate (SCBs) on fresh rupee loans too, rose to 9% in Jan’23 from 8.8% in Dec’22. Non-food credit offtake continued its robust rise at 16.7% on-year in Jan’23 due to strong growth in loans to NBFCs and personal loans.
Long term durable liquidity worth ~Rs. 73,000 crores provided under long term repos is due for maturity in March and April 2023. This coupled
with advance tax outflows in March will further tighten the liquidity in the system and can lead to a rise in the rates.
Inflation
- Headline inflation for Feb’23 came in at 6.4%, declining marginally from 6.5% observed the previous month.
Wholesale Price Index (WPI) eased to 3.9% in Feb’23, compared to 4.7% in Jan’23 due to a favorable base effect.
Headline CPI is likely to moderate in the coming few months owing to a favorable base effect and transmission of easing WPI inflation.
Transmission of past rate hikes could further soften inflation. However, upside risks to inflation stem from an uncertain global environment
and domestic weather conditions. Global weather forecast are putting a high probability of El-Nino in 2023.
Foreign Exchange
- Foreign exchange reserves at USD 561 Bn at the end of Feb’23 witnessed a fall of USD 16 Bn from previous month. This was largely on account of dollar strengthening and FPI outflows of USD 3.7 million in the first two months of CY’23, compared to an inflow of USD 5 million during Q4
CY’22. After cooling down to 102 in Jan’23, the dollar index rose to 105 in Feb’23, led by a 25bps hike and a hawkish policy stance by the Federal Reserve.
The recent collapse of banks SVB and Signature in the US and the ensuing stress in the US banking system might lead the Fed to take an
accommodative stance. Many analysts are not looking at a rate cut by the Fed. This could prevent further strengthening of the dollar. However,
the global risk-off sentiment and flight to safe haven assets will continue to support the dollar.
LAF : Liquidity Adjustment Facility, SCB : Scheduled Commercial Banks. Source: TruBoard Research, CMIE, RBI
Foreign Trade
- India’s merchandise trade deficit narrowed to USD 18 Bn in Jan’23 from USD 22 Bn in Dec’22 driven by a fall in imports, faster than the fall in
exports. Services trade balance in FY23 (year-to-date) has crossed pre-pandemic levels (USD 118 Bn in FY23 vs 78 Bn in FY19). Core (non-oil and non-gold) imports witnessed a de-growth of 3.8% on-year in Jan’23, compared to a growth of 2.8% in Dec’22, signaling a
slowdown in domestic demand.Weak economic activity in India’s key export markets are expected to weigh down on exports. Easing of global commodity price pressures can
further lower India’s import bill in the coming months. However, upside risks to commodity prices stem from tense geopolitical situations and
easing of stringent lockdowns in China.
Industrial Activity
- Industrial Production growth showed marginal improvement, growing 5.2% (YoY) in Jan’23 compared to 4.7% (YoY) in Dec’22. On a month-onmonth basis, IIP grew 0.8% in Jan’23, compared to 5.7% in Dec’22.
Manufacturing activity grew 3.7% (YoY) on account of double-digit growth in capital-intensive sectors like electrical equipment, machinery and
automobiles.A rise in capacity utilization in manufacturing sector (74.4% in Q3 FY23 vs 72.4% in Q2 FY23), double-digit growth in non-food credit growth
throughout FY23 along with the government’s thrust on capex bodes well for manufacturing activity, having the highest weight in IIP.
TruQuest is knowledge series launched by TruBoard Partners providing succinct updates and views on:
- Liquidity outlook
- India’s macro economic view
- Trends within the infrastructure, Real Estate and Renewable Energy sectors
- Impact analysis of new regulations and policies on lending and capital flow
Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
Disclaimer
The data and analysis covered in this report of TruQuest has been compiled by TruBoard Pvt Ltd and its associates (TruBoard) based upon information available to the public and sources believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate or complete. TruBoard has reviewed the data, so far as it includes current or historical information which is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Information in certain instances consists of compilations and/or estimates representing TruBoard’s opinion based on statistical procedures, as TruBoard deems appropriate. Sources of information are not always under the control of TruBoard. TruBoard accepts no liability and will not be liable for any loss of damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary) from use of this data, howsoever arising, and including any loss, damage or expense arising from, but not limited to any defect, error, imperfection, fault, mistake or inaccuracy with this document, its content.