Indian Economy Grows At 8.7 Per Cent, Q4 Hit By Pandemic

India’s Gross Domestic Product (GDP) for financial year 2021-22 has grown to 8.7 per cent down from 8.9 per cent estimated in February. The economy had witnessed a contraction of 6.6 per cent in 2020-2021, stated the National Statistical Office (NSO) on May 31, 2022.

However, the economy slowed down in the January-March quarter (Q4) due to the impact of restriction imposed by the government in the backdrop of COVID-19 pandemic. It showed a growth of 4.1 per cent which is lower than 5.4 per cent in October-December, 2021 quarter (Q3).

For 2022-23, the Reserve Bank of India (RBI) has projected India’s GDP growth rate to be 7.2 per cent. However, the NSO will be releasing its quarterly GDP estimates for the quarter April-June 2022 (Q1 2022-23) on August 31.

According to the data released by the government, manufacturing is the only sector to record a contraction in the Q4 at -0.2 per cent which was growing at the rate of 15.2 per cent during the same quarter last year. The manufacturing sector had witnessed a growth of 0.3 per cent in the Q3 2021-22.

The agriculture sector showed a rise to 4.1 per cent in the Q4, while mining & quarrying and Electricity, Gas, Water Supply & Other Utility Services grew at the rate of 6.7 per cent and 4.5 per cent respectively.

The data showed that construction sector experienced a growth of 2.0 per cent.

Briefing the media on the figures of GDP, Chief Economic Adviser V.AnanthaNageswaran said that the growth momentum of the economy ‘is intact’, although challenges remain from the continuing Russia-Ukraine war and tightening of monetary policies by developed countries.

He said out of the 7 per cent retail inflation rate, about 2 per cent is coming from imported price pressures. With crude oil prices rising, inflationary pressures will remain elevated but the risk of stagflation ‘is quite low’ for India compared to the rest of the world.

As per data, all sectors in the economy showed higher recovery in FY22 from pre-Covid levels of FY20 except trade, hotels, and transport. The hospitality and transport sector showed a growth of 5.3 per cent which is lower than 6.3 in October-December quarter. The sector witnessed a contraction of
-3.4 per cent in Q4 2020-21.

“Manufacturing drop is difficult to pinpoint; at this point I would like to attribute it to the effect of the Omicron variant, with lockdowns in several states, spilling over to February as well. The industrial production has indeed recovered in the course of the remaining months of the financial year and April as well. Therefore, at this point, I would say that probably it will turn out to be an aberration as far as contraction in manufacturing is concerned,” Nageswaran said.

On the front of expenditure component of GDP, Private final consumption expenditure grew by 1.8 per cent year-on-year in Q4 of FY22. Gross fixed capital formation (GFCG) grew by 5.1 per cent. Government final consumption expenditure provided support by growing at 4.8 per cent in January-March.

Gross Value Added grew at 8.1 per cent for FY22 as against a contraction of 4.8 per cent last year. The GDP in nominal terms, which factors in inflation, is seen growing 19.5 per cent as against a contraction of 1.4 per cent last year.

Separately released data for government accounts showed the fiscal deficit for 2021-22 worked out to be 6.71 per cent of the gross domestic product (GDP), lower than 6.9 per cent projected by the Finance Ministry in the revised Budget Estimates.

SBI On GDP Figures

Dr SoumyaKanti Ghosh, Group Chief Economic Adviser, State Bank of India said that GDP numbers do not disappoint but inspires the market.

In the research report, Ghosh stated that there were almost minimal data revisions in Q1, Q2 and Q3 of FY22. For FY22, real GDP has been revised downwards by INR 360 billion to INR 147 trillion as per the first advanced estimate released in early February 2022, of which INR 270 bn alone is in Q4. Quarterly GDP growth for Q1, Q2 and Q3 have also been revised downwards modestly. The GDP growth for Q1 was revised downwards by 25 bps to 20.1%.

Mentioning the manufacturing sector which has witnessed a contraction of 0.2 per cent, he said, “We believe that by Q1 FY23 this sector will reach or cross the pre-pandemic level.”

The report further stated that on expenditure side, while private final consumption expenditure grew by 7.9 per cent in FY22 as compared to contraction in FY21, the Government final consumption expenditure decelerated to 2.6 per cent inFY22 as against 3.6 per cent growth in FY21. 

“However, if we look at the Q4 growth in private final consumption expenditure, it has revealed a much lower growth rate at 1.8 per cent. Gross fixed capital formation grew by whopping 15.8 per cent in FY22. Both valuables and exports exhibited double-digit growth,” Ghosh said.

He said, the sector-wise data for April Indicate that credit off-take has happened in almost all sectors. Personal loans segment continued to perform well, registering acceleration in growth to 14.7 per cent in April 2022 and contributes around 90 per cent of the incremental credit during the month, primarily driven by ‘housing’, ‘vehicle loans’ and ‘Other personal loans’ segments. 

“Customers, especially in retail verticals could be having a feel of future run expected in interest rates, and might be front loading their purchases in days to come giving a fillip to consumer demands in select niche areas,” he added.

Several Positive Indicators

Meanwhile, SujanHajra, Chief Economist and Executive Director, AnandRathi Shares & Stock Brokers said that GDP figures have shown some positive indicators despite lower growth rate.

“The Q4 FY22 at 4.1 per cent and FY22 GDP growth at 8.7 per cent came marginally lower than our expectations. Moreover, the growth comes against the negative base of the pandemic year. Yet, there are several positive indicators as well. The rebound in capex in FY22 is the biggest positive,” Hajra said.

He said that even private consumption shows signs of improvement. But for large trade deficit and subdued increase in government consumption, GDP growth could be in double digits in FY22 and close to 8 per cent in Q4 FY22.

“Despite the ongoing geopolitical uncertainties, supply disruptions, high commodity prices, inflation and monetary tightening, we expect India to continue to be the fastest growing major economy of the world in FY23 as well with 7.5 per cent growth. The broadly in-line growth number, better than expected fiscal number for FY22 and infra growth number for April 2022 would be positive for financial markets,” he added.

No Sign Of The Promised ‘Recovery’:Chidambaram

Showing disappointment over the GDP numbers, ex-finance minister P. Chidambaram said that there was no sign of the promised ‘recovery’.

He said, “The NSO figures are out: The most striking graph is the quarterly growth rates in 2021-22 of 20.1, 8.4, 5.4 and 4.1 per cent. That graph tells all. The growth rate is weakening with every quarter and there is no sign of the promised ‘recovery’.”

“The GDP in 2021-22 is barely above the level achieved in the 2019-20. That means that after...two years, India’s Economy is at about the same level as it was on 31-3-2020,” he said in a series of tweets.