India’s GVA (gross value added at 2011-12 prices) growth is expected to slow to 5.5 per cent in 2023-24 from 6.4 per cent in 2022-23. The official growth estimate for 2022-23 is 6.7 per cent. But we believe the year would end with a slower growth of 6.4 per cent.

The deceleration in GVA growth in 2023-24 is expected to be broad-based. We project only the manufacturing sector to report a considerable improvement in GVA growth in 2023-24.

The agricultural sector that lent a good support to GVA during the coronavirus pandemic is expected to witness a moderation in growth in 2023-24. We expect its GVA to grow by 2.7 per cent, slower than the 3.7 per cent growth CMIE has estimated for 2022-23. A large portion of the agricultural growth in 2023-24 is expected to come from livestock, forestry and fishing. Production of major crops is expected to fall. In the last two years, strong market prices enthused farmers to bring more area under cultivation. Area sown of major crops touched record levels in 2021-22 and 2022-23. We expect this to correct in 2023-24. Crop yields are expected to see a marginal fall too.

We estimate the industrial sector to have grown by a sedate 3.2 per cent in 2022-23 due to an anaemic 1.1 per cent growth in the manufacturing GVA. Listed manufacturing companies started reporting year-on-year shrinkage in operating profits in nominal terms from the June 2022 quarter. The fall aggravated in the September and December 2022 quarters. This, coupled with weakening exports has yielded low growth in value added of the manufacturing sector this year. While we expect exports to weaken further in 2023-24, the fall in profits is unlikely to continue. We therefore expect the manufacturing GVA to grow by 3.8 per cent in 2023-24. The growth will be driven by capex dependent industries such as cement and steel.

GVA of the mining & quarrying sector is projected to grow by 2.8 per cent and that of the utilities like electricity, gas & water distribution sector is forecast to increase by 5.2 per cent in 2023-24.

We expect GVA of the construction sector to grow by 6.3 per cent in 2023-24, slightly slower than the 7 per cent growth estimated for 2022-23. This is because the Centre that was fuelling the GFCF growth for the past two years, may not be able to deliver a similarly high growth in capital expenditure next year due to a likely slowdown in its tax collections. However, creation of public infrastructure, particularly roads and railways, would still remain the area of focus for the Centre. Participation of private corporates in capacity addition is expected to remain modest as some may choose to wait for better visibility of sustainable growth in demand and also for the current high interest rates cycle to turn around.

Our views on GFCF leverage insights from CMIE’s CapEx service, which tracks over 27,000 industrial & infrastructural capacity creation projects of the ticket size Rs.10 million or above. According to the service, India is slated to see record project commissioning of Rs.7 trillion in 2022-23. This is about 13 per cent higher than the commissioning seen in 2021-22. The service estimates project commissioning to increase further, albeit at a slower rate of 7 per cent, to touch a fresh high of Rs.7.5 trillion in 2023-24.

GVA of the services sector is projected to grow by 6.9 per cent in 2023-24. This is way faster than the growth projected in agricultural and industrial GVA.

The main driver of this growth would be the trade, hotels, transport & communication sector, which is expected to grow by 8 per cent in 2023-24 on top of an 11.5 per cent growth estimated for 2022-23. This will be the highest GVA growth recorded by any sector in 2023-24. The sector has a potential to deliver an even higher growth. But the slowdown in exports and its cascading effects on the performance of shipping and rail transport are expected to weigh on it. The trade, hotels, transport & communication was the worst hit sector by the covid-related restrictions on mobility and business operations and was also the last one to recover from the shock.

We expect the growth of the financial services, real estate and professional services sector also to decelerate to 5.9 per cent from 6.4 per cent estimated for 2022-23. A big sub-segment of this sector banking and NBFCs is expected to witness moderation in credit demand as lending rates firm-up and pent-up demand peters off. Profit margins of banks are also expected to soften as they hike deposit rates to attract more funds. Professional services like IT too are expected to report a slowdown in growth due to global headwinds.

We expect GVA generation through public administration, defence and other services to grow by 6.9 per cent in 2023-24 on top of a 7.9 per cent growth estimated for 2022-23.

GVA growth is expected to witness almost a percentage point deceleration in 2023-24 due to softening of agricultural growth, weaker exports and fading away of pent-up demand.