GDP growth slows to 4.1 percent in the fourth quarter

Provisional national income estimates issued on Tuesday show that India’s GDP growth dropped to a four-quarter low of 4.1 percent in the January-March period, down from 5.4 percent the previous quarter, as industrial production shrank. As a result, full-year growth was 8.7%, slightly lower than the 8.9% forecast in February.

In 2021-22, the economy’s Gross Value-Added (GVA) is expected to rise by 8.1 percent, somewhat less than the 8.3 percent predicted by the National Statistical Office (NSO) earlier. In the aftermath of the COVID-19 lockdowns, the GDP shrank by 6.6 percent in 2020-21, while the GVA shrank by 4.8 percent.

Establish full economic recovery with Real GDP

The newest national income forecasts, according to the Finance Ministry, ‘establish full economic recovery,’ with real GDP in 2021-22 exceeding pre-pandemic levels in 2019-20. It claimed that real GDP growth in the fourth quarter (Q4) of 2021-22 was 6.7 percent, demonstrating sustained growth momentum’ into the current fiscal year.

Trade, hotels, transportation, communication, and services associated with the broadcasting industry, which is contact-dependent and employment-intensive, have continued to lag behind pre-pandemic levels, ending FY22 11.3 percent below 2019-20 GVA levels.

In the January-March 2022 quarter, overall GVA growth decreased to 3.9 percent, down from 4.7 percent the previous quarter. Worryingly, manufacturing output fell 0.2 percent from the previous year.

First drop in factory output

This was the first drop in factory output since the catastrophic 31.5 percent drop in the first quarter of 2020-21 when the country was engulfed in a state of emergency.

Economists pointed out that real GDP was only ‘a modest’ 1.5 percent higher than pre-COVID levels, and blamed the Omicron variation of COVID-19, high commodity prices, and inflation, as well as data corrections for the first half of the year, for the lower-than-expected full-year growth.

The full-year growth rate was also affected by a negative revision in growth rates for the first two quarters of 2021-22, compared to the most recent forecasts issued on February 28. The previously anticipated 20.3 percent GDP growth for Q1 was reduced to 20.1 percent, while the same statistic for Q2 was cut to 8.4 percent from 8.5 percent.

According to Chief Economic Advisor V. Anantha Nageswaran, the real GDP data were roughly in line with earlier forecasts, making the claim that the growth rate was lower than expected difficult to establish.

Agriculture and the financial, real estate, and professional services sectors, the only two sectors that gained in 2020-21, increased by 3% and 4.2 percent in 2021-22, respectively, compared to 3.3 percent and 2.2 percent the previous year.

Five major economic segments saw GVA growth

Five major economic segments saw GVA growth of 10% or more in the previous fiscal year, contrasted to steep declines in 2020-21, led by public administration, defense, and other services, which saw GVA rise 12.6 percent from 5.5 percent a year earlier.

GVA from mining and quarrying, as well as building, grew by 11.5 percent in 2021-22 after contracting by 8.6 percent and 7.3 percent in 2020-21. GVA from commerce increased by 11.1 percent after falling by 20.2 percent in 2020-21, while manufacturing GVA increased by 9.9 percent after falling by 0.6 percent the previous year.

According to the Finance Ministry, the economy’s investment rate increased to 33.6 percent in Q4, the highest since Q3 of 2019-20. Furthermore, it was noted that, while the manufacturing sector declined from a year ago, it increased sequentially at 14.2 percent in Q4.

According to EY India’s principal policy advisor and economist D.K. Srivastava, the resurgence in investment demand was a bright point. However, net exports had a negative contribution to real GDP growth of (-)2.9 percent. He also pointed out that, while private final consumption expenditure climbed 7.9% in 2021-22, the amount was only 1.2 lakh crore greater than in 2019-20.

Interest rate hikes are expected to have an impact on real GDP

Interest rate hikes are expected to have an impact on real GDP by the end of this fiscal year, but growth might be boosted by a “strong bounce-back in contact-based services,” according to Crisil chief economist Dharmakirti Joshi. “However, headwinds from slowing global growth and higher oil costs have shifted the risks downwards to 7.3 percent for 2022-23,” he said.

The greatest issue for India’s policymakers is managing the troika of growth, inflation, and fiscal balance, according to the CEA, but India is better off than several developed countries in terms of inflation and other global challenges that threaten growth.

“The silver lining is that India has paid its growth dues over the last decade by repairing corporate and financial balance sheets. “Non-food credit growth is beginning to crawl into double digits, and we expect the bank credit to GDP ratio to start looking up in the coming decade after a decade of stagnation,” he said.

“In general, interest rates becoming normal may not necessarily be an anti-growth move if they are coming from a very low rate,” Mr. Nageswaran said, dismissing concerns about interest rate increases affecting growth. The central bank’s confidence in hiking rates underscores the assumption that the recovery is taking hold.” 

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