GDP Growth Rate Revised Down To 8.9%
The Indian economy grew at 5.4% in the three months ending December 31 as against 0.7% growth in the corresponding period a year ago, with the construction sector recording a contraction of 2.8 per cent and manufacturing sector registering a meagre growth of 0.2% and is expected to grow at 8.9% in 2021-22, according to the second advance estimate released by the National Statistical Office (NSO) on February 28. This entails a GDP growth of 4.8% in the quarter ending March 31. While these numbers are lower than the 9.2% annual growth projection in the first advance estimate released by NSO on January 7 and the quarterly growth projections of 6.6% and 6% (for the two quarters) made by the Reserve Bank of India’s Monetary Policy Committee (MPC) in December 2021, the actual economic performance is better than the first advance estimates projected.
For each financial year, say 2021-22, the GDP estimates go through several rounds of revisions. Each year on January 7, the Ministry of Statistics and Programme Implementation (MoSPI) releases the FAEs. Then in February end, after incorporating the Q3 data, come the SAEs. By May-end come the Provisional Estimates after incorporating the Q4 (Jan to March) data. Then, in end-January 2023, MoSPI will release the First Revised Estimates for FY22. These will be followed by the Second Revised Estimates (by Jan-end 2024) and the Third Revised Estimates (byJan-end2025). Each revision benefits from more data, making the GDP estimates more accurate and robust.
Based on FAEs, the key observations about the nature of India’s recovery were:
■ Overall GDP was expected to go past the pre-Covid level.
■ Recovery was driven by higher investments— as evidenced by the spike in GFCF.
■ The main worry was poor levels of PFCE, which was well below the pre-Covid levels—
an effect of the ‘K-shaped’ recovery. The same held true for per capita personal expenditure as well as per capita GDP (or income).
The latest GDP numbers paint a better picture than the first advance estimates – both GDP and PFCE are higher in absolute terms – but experts believe that the larger challenge is going to be pushing this growth figure higher, as the favourable base effect (a low base a year ago) will start waning after the quarter ending June 2022. This, when read with some evidence of sequential moderation in the economy, has led to rising concerns. For example, the index of eight core sector industries grew at 3.7% in January compared to an annual growth of 4% in December 2021. Construction sector activity in the December 2021 quarter actually saw a contraction of 2.8% compared to December 2020.
Several indicators used in the estimation of 3QFY22 GDP such as consumption of steel, sale of commercial/passenger vehicle, cargo handled at sea ports are either showing negative or low growth despite extraordinary low base of FY21. The current geopolitical disruption is likely to add to the economy’s difficulties, which has sent crude prices above $100 per barrel. While petrol-diesel prices have not been increased since November 2021, prices are likely to rise once the ongoing election cycle ends on March 7.
The economic recovery might see a minor bump down in 4QFY22 led by mild Omicron wave, while the current geopolitical escalation may lead to potential global energy trade and price disruptions and weigh on growth. We assume the energy supply shock may resolve in coming months and likely will not leave a lasting mark on the global and domestic expansion. However, it would clearly have a near term negative impact. Going ahead, fiscal and monetary support continue to nurture growth, especially as recovery in economic activity is yet to be broad-based. Over all, all components are above the pre Covid level and they are being led by private demand, which augurs well for the future.