India’s economic growth estimated at 8.7% in FY22, Q4 GDP slows to 4.1%

India’s GDP grew by 4.1% in the fourth quarter of FY22. Meanwhile, the overall growth recorded for the financial year 2021-22 is estimated at 8.7% as against the contraction of 6.6% in FY21.

The estimate of 8.7% for FY22 is the highest in 22 years in terms of back series data.

The nominal GDP grew by 19.5% in the financial year 2021-22.

GVA for FY22 came in at 8.1% compared to a contraction of 4.8% in the preceding fiscal.

Contact-intensive sectors like trade, hotels, and transport grew by 11.1% compared to a contraction of 20%. The services sector had contracted in the last fiscal as it bore the brunt of pandemic-related restrictions.

Manufacturing grew by 9.9% against a contraction of 0.6%. Manufacturing in the fourth quarter collapsed in the negative territory and contracted by 0.2%, thereby, pulling the overall GDP growth down. Construction showed a growth of 11.5% versus a contraction 7.3%.

Agriculture slowed to 3% in FY22 compared to a growth of 3.3% in last fiscal.

The numbers have come down from the official second advance estimate of 8.9% released on February 28 owing to third-wave of Covid-19 and surging global prices.

The fluctuation in GDP numbers could be attributed to the impact of localised restrictions during the Omicron wave and high inflationary pressures hitting private consumption. The fears of the Omicron-led third wave resulted in disruption of economic recovery which was afoot.

Adding on to these worries are the concerns of early and excessive heatwaves in March, export bans by key producers, shortage of raw materials and supply-side disruptions. The agriculture and industry sectors suffered a lot, especially during the Q4 of the FY22, due to the above-mentioned factors.

Higher raw material cost has impacted margins of companies which poses a challenge to the recovery in private investment.

Aditi Nayar, chief economist, ICRA, said the slowdown seen in India’s GDP growth to a four-quarter low in January-March period of 2021-22 was a result of the adverse impact of the third wave on contact services, and of high commodity prices on margins, as well as the unfavourable base effect.

“Unsurprisingly, the services sector was the main driver of the 3.9 per cent GVA growth in fourth quarter of FY2022,” she said.

Boosted by government spending, Public Administration, Defence and Other Services (PADOS) stood out as the fastest growing sub-sector of GVA (Gross Value Added) in January-March quarter of last fiscal, Nayar added.

Rumki Majumdar, economist, Deloitte India, said, the difference between the real and nominal GDP suggests that inflation has been a persistent problem, and the economy has been fighting the challenge of rising prices for a long time now.

“Higher prices weighed on consumer wallets and production costs. Panic and the search for safer havens amongst global investors led to capital outflows from emerging countries, India being one. This resulted in currency depreciation and higher import bills,” Majumdar said.

Ramesh Nair, CEO, India & MD, Market Development, Asia, Colliers, said, India’s GDP grew by 8.7 per cent in 2021-22, staging a major comeback after a deceleration of 6.6 per cent in the previous fiscal.

“This clearly indicates that the economy is out of the woods from the effects of pandemic and is on its path to recovery. Both housing and office demand have a very high correlation to GDP, even if pricing cycles are dependent on demand and supply dynamics,” he said.

D K Srivastava, chief policy advisor, EY India, said the NSO numbers confirm that all GDP segments have emerged higher than their pre-Covid magnitudes.

“Going forward, in 2022-23, the Implicit Price Deflator (IPD)-based inflation may remain high given the current inflationary trends. With the expectation of nominal GDP growth in FY23 being significantly above the real GDP growth, the Centre may garner tangibly higher tax revenues compared to the budget estimates,” Srivastava added.

What lies ahead?

The soaring commodity prices owing to the ongoing Russia-Ukraine war (that started in late February this year) have taken a toll on peoples’ pockets. The retail inflation landed at an eight-year high of 7.79% in April 2022, breaching the upper limit of RBI’s tolerance band for the fourth consecutive month.

The pass-through of this inflationary pressure could hit private consumption which is one of the key drivers of the Indian economy.

Therefore, to curb the accelerating price rise situation, the Reserve Bank announced a rate hike of 40 bps in the repo rate making it 4.40%. RBI had revised the GDP growth rate to 7.2%, from 7.8%, in its April resolution for FY23 due to higher oil prices causing a threat to private consumption.

RBI governor Shaktikanta Das stated that more rate hikes could be witnessed in the coming months as the central bank is now focusing on removal of the accommodative stance gradually.

(With inputs from PTI)

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