Economists, in line with the Reserve Bank's estimates, are hopeful that India will score a double-digit gross domestic product (GDP) growth in the April-June quarter of 2022-23, a sharp uptrend from the 4.1% growth recorded in the previous (Q4 FY22) quarter. SBI Research's latest nowcasting model shows India's economy in the first quarter growing at 15.7%, with a large possibility of an upward bias. If this materialises, there could be an upside to the RBI's GDP growth projections of 7.2% for FY23 as well.

Similarly, ratings agency ICRA has said the country's GDP growth is projected to spike to a four-quarter high of 13% in the April-June quarter. The high growth is expected due to the low base during the second wave of the Covid-19 pandemic in India, and the robust recovery in contact-intensive services, says ICRA.

The GDP data for the April-June quarter will be announced on August 31, 2022.

However, the SBI report says the growth indicators suggest more than just a ‘low base’ contributing to growth. The SBI CLI Index -- a basket of 41 leading indicators -- based on monthly data has shown a significant acceleration, says SBI.

Out of the 41 high frequency leading indicators, 89% showed an acceleration in the first quarter, compared to 75% in the same period last year. This shows the growth momentum in the first quarter was strong and broad-based, says SBI, and that it is not merely a reflection of a base. The growth momentum has continued in the second quarter as well. The leading indicators have continued to accelerate with 81% of them showing an uptrend, it adds.

"Importantly, private final consumption expenditure in real terms that had declined significantly by ₹4.77 lakh crore in Q1FY21 owing to COVID-19 pandemic recovered by 46% in Q1FY22. It remains to be seen how the remaining 54% pent-up demand recovered in Q1FY23," Soumya Kanti Ghosh, the group chief economic adviser at State Bank of India, says, adding that it is likely to be more than 54%.

If that happens, it will show a strong recovery in consumer demand, specifically in services, which account for 6.8% of the country's GDP and has also helped in the likely strong Q1 FY23 numbers.

ICRA also expects the sectoral growth in Q1 FY23 to be driven by the services sector, followed by the industry. However, the GVA growth in agriculture, forestry and fishing is projected to decline to around 1% in Q1 FY23 from 4.1% in Q4 FY22, on account of the adverse impact of the heat wave in several parts of the country, which reduced wheat output.

“The anticipated double-digit GDP expansion in Q1 FY2023 benefits from the low base of the second wave of Covid-19 in India in Q1 FY2022 as well as the robust recovery in the contact-intensive sectors following the widening vaccination coverage,” says Aditi Nayar, chief economist, ICRA.

These projections are almost in line but lower than the Reserve Bank's latest estimates that peg the country's GDP growth at 16.2% in the first quarter of 2022-23.

On the global level, SBI thinks the Russia-Ukraine conflict's global macroeconomic effects, for now, seem to have moderated. The conflict is influencing direct trade effects, energy and commodity prices, confidence, and policy responses, particularly in China. "Inflation has moved as a policy challenge," says the SBI report.

SBI believes the series of rate hikes in the U.S. and even in India seem to have no major impact on the U.S. labour market and growth outlook in India, which could prompt more rate hikes in future. "This could open up opportunities for more rate hikes by Fed and even RBI MPC minutes suggests some more rate hikes even as inflation is expected to significantly moderate in H2FY23."

The RBI this month hiked the key policy rate for the third time in a row by 50 basis points to 5.4%. With this hike, the key policy rate has now reached the pre-pandemic levels, the highest since August 2019. The U.S. Federal Reserve also hiked interest rates by 75 basis points (bps) for the second straight month in July, raising rates by a total of 150 bps in the past two months, the highest since the early 1980s.

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