India's FY23 GDP growth likely to surpass 7%, manufacturing sector to rebound: SBI report

As per the report authored by State Bank of India’s Group Chief Economic Adviser Dr. Soumya Kanti Ghosh, “Locally, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth while supply responses and cost conditions are poised to improve as inflationary pressure is easing.”

The Union Budget 2023-24’s emphasis on capital expenditure is expected to crowd-in private investment, strengthen job creation and demand, and raise our growth potential.

RBI has estimated Q4FY23 Real GDP growth to be 5.1% and full-year FY23 estimates by NSO is 7.0%. For 2023-24, RBI is projecting GDP growth at 6.5% with Q1 pegged at 7.6%.

SBI’s ANN (Artificial Neural Network) model, based on 30 high-frequency indicators from key sectors, and tuned/trained to project the GDP numbers forecast the quarterly GDP growth for Q4FY23 at 5.5%. At this rate, India’s GDP growth for FY23 is likely at 7.1%.               

The variegated patterns of growth emerging across the globe are bringing forth unprecedented challenges before policymakers, regulators and economists in assessing the real rates of projected growth, not only during the current year i.e. 2023 but continuing through 2024 and 2025 as the inflation trajectory management for central banks has been elongated after the surprising turn of events last year.

“Clearly, many central banks will have to sit and watch the paint dry while bracing themselves for enhanced pass-through of geo-political and climate related shocks, apart from the usual suspects like burden of debt servicing in rising interest rate regime, money and currency market upheavals, accelerated spending required on energy and mobility transition and anchoring a threshold along quality job availability fitting the skill sets of a younger, experience centric population,” the report noted.       

World Economic Outlook (WEO) report from IMF in April 2023 revised the baseline growth forecast from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024.

AEs are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023.

Surprisingly, China’s GDP is expected to witness a rebound, growing at 5.2% in 2023 and 4.5% in 2024, compared to 3.0% in 2022.

“Given the intensity/level of distrust towards the mainland from the global community, could China use its pricing prowess in bulk manufacturing as a hook to lure the corporates, playing along their quest for maintaining stronger bottom lines on a quarterly basis? Such a recourse, if it gains winds, would sure be a checkmate to the genuine efforts made in last 2-3 years to isolate the country, highlighting its vile intentions,” the report said.       

Global headline inflation in the baseline case is set to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices though underlying (core) inflation is likely to decline more slowly.

Meanwhile, India Inc. continues to front-lead the economic turnaround while embracing better operational and financial efficiency. In Q4FY23, around 1700 listed entities reported top-line growth of 12, while PAT grew by around 19% as compared to the same period the previous year.

The same set of companies reported EBIDTA growth of around 23% in Q4FY23.

Corporate results, ex BFSI, for Q4FY23, show both top-line and bottom-line growth of around 10%, while EBIDTA grew by 7% as compared to Q4FY22.

Further, it is pertinent to mention that the corporate margin, which was continuously under pressure for the last few quarters, showed sign of improvement in Q4FY23. As reflected in results of around 1500 listed entities ex BFSI, EBIDTA margin, on an aggregate basis, improved from 13.96% in Q4FY22 to 14.34% in Q4FY23.

Green shoots are also emerging on foreign capital inflows in capital markets with YTD FIIs inflows in FY24 touching $6Bn, a reversal of the trend from 2022.

Start-ups financing has been hit due to banking turmoil in the US, in particular, the failure of niche banks though it also offers a gearing up a pedestal to domestic FIs to ring-fence the financial needs of these changelings internally to ensure the sweet spot enjoyed by India grows in a disruptive and disproportionate manner.