Q3 GDP numbers: Pent-up household demand fizzles out, shows data

Govt capex carries capital formation

India’s household consumption showed slight deceleration in the October-December FY23 quarter as a contributor to gross domestic product compared to the same period last year, indicating that the post-pandemic pent-up demand may have run its course, and that growth continues to be uneven.

The contribution of government-driven consumption to nominal GDP also reduced year-on-year for the third quarter in a row, while infrastructure investment continued its strong rebound after the pandemic on the back of the Centre’s capital expenditure push.

The data released by the National Statistical Office on Tuesday showed that private final consumption expenditure (PFCE), a proxy for household consumption, accounted for 63.3 per cent in nominal GDP for the October-December quarter (Q3) compared with 65.1 per cent in Q3FY22.

Government final consumption expenditure (GFCE) had a 9 per cent share in nominal GDP compared with 9.5 per cent for the same period last year, while gross fixed capital formation (a proxy for infrastructure investment) was 26.8 per cent versus 26.6 per cent.
 

“Private consumption showed the biggest moderation in growth, slowing to 2.1 per cent year-on-year from 8.8 per cent year-on-year in Q3FY22, despite robust high-frequency data. This comes amidst ongoing negative growth in government consumption, while overall investment grew by 8.3 per cent on the back of growth in capex spending,” said Rahul Bajoria of Barclays.
 

Sunil Kumar Sinha, principal economist with India Ratings, said: “We have been highlighting that the current consumption demand is skewed towards goods and services consumed largely by the households in the upper-income bracket and since it is not broad-based, sustaining the recovery of consumption demand will be challenge.”

However, in a media briefing following the release of the GDP data, Chief Economic Advisor V Anantha Nageswaran disagreed with the assessment of independent economists.

“We should not be looking too much at quarterly numbers, and they are not seasonally adjusted. The high-frequency data shows us that consumption remains strong,” he said.

The NSO also released the second advance estimates for GDP for FY23, which showed that PFCE for the year was expected to come in at 60.5 per cent of GDP compared with 61.1 per cent in FY22. GFCE is expected to contribute 10.5 per cent to nominal GDP in FY23 versus 11.2 per cent in FY22. Gross fixed capital formation is expected to contribute 29.2 per cent to nominal GDP compared with 28.9 per cent in FY22.

India Ratings’ Sinha said the road ahead would not be easy so long as PFCE did not recover fully and become broad-based.

“The household sector, which accounts for 44-45 per cent of GVA, saw its nominal wage growth decline to 5.7 per cent during FY17-21 from 8.2 per cent during FY12-16. In fact, real wage growth became nearly flat or even turned negative in some months of FY22 due to high inflation,” Sinha said.

He added that since much of the growth in consumption demand was driven by wage hikes in the household sector, increase in its wage growth was an imperative for a sustainable economic recovery.

Rajani Sinha, chief economist with CARE Ratings, said: “As the external demand conditions remain weak, it is critical that domestic demand should accelerate. Improving rural demand and rising rural wages are the positive developments for aggregate demand. However, there is expected to be some fizzling out of the pent-up demand seen in the last few quarters.”