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Published: Mar 04, 2023
Updated: Mar 04, 2023

India's GDP growth slows to 4.4% in Q3FY23 due to inflation and tight monetary policy

Economic growth slows down

India's real GDP growth in the third quarter of FY23 was estimated to be 4.4%, a significant drop from the 6.3% growth in the previous quarter, according to government data released by the Ministry of Statistics and Programme Implementation. The weaker-than-expected growth was attributed to high inflation and the resultant tight monetary policy of the Reserve Bank of India (RBI), which has hiked key interest rates multiple times since May 2022. The slower growth could raise concerns about the trajectory of India's economy going forward, as the global economic situation remains tense.

GDP growth projections for FY23:

The data indicated that real GDP growth for the entire financial year is estimated to be 7%, with nominal GDP expected to grow at 15.9% in FY23. However, the weaker-than-expected growth in Q3FY23 could impact the central government's GDP growth projections for the full financial year ending in March 2023. The government had predicted the economy to grow at 7%, while the RBI had predicted it at 6.8%.

Impact of inflation being ignored by markets

High inflation has been a major factor behind the slower GDP growth in Q3FY23. The RBI's tighter monetary policy, aimed at controlling inflation, has led to a gradual weakening of demand. The fading of the pandemic-induced base effect, which had contributed to higher growth in FY22, has also been a factor lowering India's quarterly GDP growth.

Forecast for Q4FY23:

Economists polled by Reuters have predicted that GDP growth in the final quarter of FY23 could slow down further to 4.4%, resulting in an average growth rate of 6% for the full financial year. This is below the government and central bank's estimates. The recent GDP growth data has raised concerns about India's economic growth trajectory in the near future.

Recession on cards ?

India's GDP growth in Q3FY23 has slowed down significantly due to high inflation and tight monetary policy. The weaker-than-expected growth could impact the central government's GDP growth projections for the full financial year. The RBI's tighter monetary policy has led to a gradual weakening of demand, which could result in further slowdown of economic growth in the final quarter of FY23. The fading of the pandemic-induced base effect has also contributed to lower GDP growth. The forecast for the full financial year remains below the government and central bank's estimates.