What constitutes the news?

The economy is projected to expand by a high of 13–15.7 percent during the first quarter of 2022–2023 with a higher tendency, as per leading experts on the economy.

Recently, Soumya Kanti Ghosh, group chief economist at State Bank of India, projected that the GDP will surpass 15.7 percent in the first quarter, with a heightened potential that the ultimate statistics will appear as a greater number. In contrast, Aditi Nayar, chief economist at rating agency Icra, projected that the economy will climb by a significantly smaller 13 percent in the June quarter.

Latest Trends in the growth

Even if the second wave of COVID-19 was more deadly and generated a 23.9 percent decline in GDP in June 2020 as a consequence, the same element contributed to a higher rise in June 2021, till the time it touched the 20.1 percent bar.

In its policy review on August 5, the Reserve Bank-led monetary policy committee projected that the economy will indeed bloom by 16.2% in the three months ending in April-June.

SBI Research forecast the GDP to exhibit a significant probability of a positive tendency in Q1 as well as to register at 15.7%. The central bank's forecasted growth of 7.2 percent for FY23 is expected to climb if this unfolds.

In accordance with the Nayar of Icra, the pace of expansion in the first quarter will be restrained at 13 percent due to the substantial base effect, the heatwave's consequences on wheat production, geopolitical concerns, and high commodity prices on demand and margins. The gross value added will show up here at 12.6 percent.

ICRA forecasts that the service industry, which will experience an expansion of 17–19 percent, will serve as the primary driver of sectoral expansion (9-11 percent).

According to a survey conducted by the SBI, a substantial number (up to 89%) of the 41 high-frequency key indicators it observes expanded in Q1 compared to Q1FY22, signifying a robust and comprehensive growth momentum. With 81 percent of the indicators indicating an upward trend compared to Q1FY22, key indicators in Q2FY23 continued to climb even more.

Interestingly, Ghosh added that the private final consumption expenditure in real terms climbed by 46% in Q1FY22 relative to Q1FY21, after declining substantially owing to the pandemic by Rs 4.77 lakh crore in Q1FY21.

A substantial comeback in consumer demand, primarily for services, has contributed to the projected excellent Q1FY23 results. The remaining 54% of pent-up demand that would have been restored in Q1FY23 would have also ended at above 54%.

Additionally, this amounts to 6.8% of the GDP contribution during the initial quarter of FY23.

Although he concedes that the dispute is undermining direct exchange, energy and commodity prices, confidence, and potential solutions, specifically in China, Nayar believes that the current dispute in Ukraine, which has currently approached its sixth month, is still having an influence on the global economy. In contrast, Ghosh believes that the impact of the situation on the international macroeconomy has been temporarily moderated.

What are the Potential Alternatives?

ICRA indicates that the desire for contact-intensive services has progressively shifted away from discretionary consumption products for the middle-to-higher income groups.

A somewhat low pace of rapid industrialization is projected as a result of this, the appearance of export demand caution, and the consequences of high commodity prices on industry volume and profit.

As a result of the heat wave's repercussions on wheat production, the agriculture sector's growth in Q1 is also surely going to be smaller than predicted.

Nayar forecasts that overall, the growth in the June quarter would be lesser than the 16.2% forecasted by the Reserve Bank's monetary policy committee.

In her opinion, if the current slowdown in commodity prices persists, this would end up lowering the marginal pressures and reducing inflationary pressures, which would lead to higher prices for discretionary items and enhance value-added growth.

In light of this, she even projects that growth in the second quarter will outperform the MPC's projection of 6.2 percent by reporting at 6.5-7 percent.