Private consumption, capital investment increases in the first quarter, government consumption slows

Despite wartime inflationary pressures in Europe, India’s private consumption and capital investment showed a strong recovery in the April-June quarter (Q1 or Q1) of 2022-23 ( exercise 23), revealed official data. Government consumption, however, declined as a percentage of gross domestic product (GDP).

Household and private sector consumption, as measured by Private Final Consumption Expenditure (PFCE), stood at Rs 39.7 trillion in nominal terms in the first quarter of FY23, compared to Rs 28.4 trillion. rupees for the same period last year and 39.2 trillion rupees in the fourth quarter (Q4) of 2021-22 (Fy22). As a percentage of nominal GDP, the CCTB was 61.1%, down from 55.5% in Q1FY22 and 59.2% in Q4FY22. However, in real or constant price terms, the CCTB only increased by 9.88% compared to the first quarter of 2019-20, the year before the Covid-19 pandemic.

“The recovery in domestic demand is reflected in the growth rates of CCTB and gross fixed capital formation (GFCF) in the corresponding quarter of the previous year,” said DK Srivastava, chief policy adviser at EY. GFCF, a proxy indicator of investment, stood at 19 trillion rupees in Q1FY23, from 14.4 trillion rupees in Q1FY22. However, it was slightly lower at Rs 20.2 trillion in Q4FY22.

At a press conference after the GDP figures, Finance Secretary TV Somanathan said the trend was normal as GFCF in the first quarter was generally lower than the fourth quarter of the previous year.

“There is more capital expenditure (capex) in the last quarter of a fiscal year by central and state governments,” Somanathan said. As a percentage of nominal GDP, GFCF was 29.2% in Q1FY23, 28.2% in Q1FY22 and 30.5% in Q4FY22.

“Investment continued to improve in the first quarter on central government investment and in infrastructure-related sectors such as steel and cement,” said DK Joshi, Chief Economist, CRISIL. However, Joshi added that weak government consumer spending was one of the reasons that kept overall growth weak, compared to analysts’ estimates.

“Private consumption is improving, with urban demand supported by contact-intensive services. Had it not been for high inflation and subdued rural demand due to negative real rural wage growth, private consumption would have grown faster,” Joshi added.

Nominal government final consumption expenditure was 7.3 trillion rupees in Q1FY23 (11.3% of nominal GDP), compared to 6.6 trillion rupees (12.9%) in Q1FY22 and 7.9 trillion rupees (11.3% of nominal GDP). 9%) at T4FY22.

With global headwinds, economists expect India’s external sector to face tough times.

“It will be essential that domestic consumption and investment pick up momentum. The recovery in consumer demand has so far been uneven with weak rural demand. While lower inflation will support overall consumer spending, an uneven monsoon will play a detrimental role in rural demand. On the investment side, positive signals are appearing with an increase in capacity utilization. So far, healthy investments by the central government over the fiscal year bode well for the investment scenario,” said Rajani Sinha, Chief Economist, CARE Ratings.

“Overall, we expect the momentum in the economy to pick up,” Sinha said.

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