India’s economy grew 4.1 per cent year-on-year in the January-March period of 2021-22 (Q4 FY22), even as the rate of growth slowed sequentially for a third straight quarter with the Omicron wave-induced restrictions and high commodity prices weighing on economic activities.
The National Statistics Office on Tuesday pared down the overall growth estimate for FY22 to 8.7 per cent from the 8.8 per cent projected in February. In FY22, all sectors except trade, hotels and communication services were above the pre-pandemic levels of FY20.
Growth in private final consumption expenditure, or private spending, decelerated sequentially in Q4 to 1.8 per cent, proving to be the weakest link. Government spending, however, picked up to grow at 4.8 per cent, supporting overall growth. Gross fixed capital formation, which represents investment demand in the economy, slowed to 5.1 per cent.
On the supply side, the manufacturing sector contracted 0.2 per cent in the March quarter due to supply chain disruptions, while agriculture growth (4.1 per cent) remained robust despite the third advance estimates projecting a decline in wheat output due to the ongoing heat wave.
The labour-intensive construction sector returned to positive growth in the March quarter (2 per cent) due to the government’s capex push and a pick-up in the real estate sector before the policy rate hike by the central bank. Growth in services output slowed to 5.5 per cent as a result of a sluggish performance of trade, hotel transport, communications services (5.3 per cent), signalling the pent-up demand did not quite translate to higher growth.
Gross value added (GVA) at basic prices grew at 3.9 per cent in the fourth quarter and 8.1 per cent in FY22.
Aditi Nayar, chief economist at ICRA Ratings, said the contraction in the manufacturing sector, which struggled with supply bottlenecks and high input prices in the last quarter of FY22, was a cause for concern. “The other concerning aspect is the reduction in the consumption-to-GDP ratio in the fourth quarter of FY22, even as the investment-to-GDP ratio has bounced back,” she added.
Reacting to the latest GDP data, Chief Economic Adviser V Anantha Nageswaran said recent high-frequency indicators showed strengthening domestic demand conditions and greater capacity utilisation in the manufacturing sector, signalling a pick-up in economic activity. “The projection of a normal monsoon and prospects of earning (higher) income will likely increase area under Kharif 2022-23 crops.
Rural demand (is) expected to revive in the coming months on the back of higher agricultural output, better pricing, expectations of a better monsoon and the government’s supportive policy for rural India,” he added.
Nayar said that going forward, India’s economy would continue to feel the heat from global volatility and uncertainties. “Factors like the Russia-Ukraine war, high global commodity prices, pace of monetary tightening by central banks globally, and overall global economic slowdown will have a bearing on India’s economy. Consumption spending could see an improvement as the employment situation in the economy improves. However, high food and fuel inflation will be a dampener for discretionary spending,” she added.
Nominal GDP is estimated to grow 19.5 per cent in FY22 to Rs 236.4 trillion. The growth embedded in nominal GDP assumed by the Union Budget for FY23 now turns out to be only 9 per cent instead of 11 per cent assumed earlier.
Many professional forecasters have recently pared down their growth projections for India. Barclays on Tuesday revised down its FY23 growth forecast to 7 per cent, acknowledging the downside risks to growth. S&P Global Ratings in May slashed India’s growth forecast to 7.3 per cent from 7.8 per cent for FY23 on rising inflationary pressures and the longer-than-expected Russia-Ukraine war.
(WITH THE INPUTS OF BS).