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Official data on GDP growth estimates for the fourth quarter and provisional annual estimates for the year 2021-22 will be released on May 31. The numbers will reveal the extent to which commodity price inflation, caused by the ongoing war, has impacted growth. However, global and domestic research houses are sounding quite alarmed about future growth, too.
The CSO has pegged GDP growth at 8.9 per cent for 2021-22.
Estimates of growth for the fourth quarter of FY22 varies widely from 3.5 per cent projected by India Ratings to 5.5 per cent projected by Bank of Baroda. With fuel as well as other agri commodities and metals hitting a peak in March, the fourth quarter numbers can provide indications about the likely impact of inflation on FY23 GDP growth.
Global agencies nervous
In a revision, global rating agency S&P has lowered its growth forecast for most countries, attributing it to weaker first-quarter numbers in many countries, higher energy and commodity prices, a longer-than-expected Russia-Ukraine conflict, faster monetary policy normalisation and slower Chinese growth.
S&P’s revised forecast of 7.3 per cent for India for the fiscal is much higher than 4.2 per cent for China in 2022, which faced stringent Covid-19 lockdowns earlier this year. However, unlike China, India’s economy is not as dependent on trade, experts have pointed out.
IMF has slashed India’s growth for 2022 lower from 9 per cent to 8.2 per cent and UN World Economic Prospects Report has lowered India’s growth to 6.4 per cent from 6.7 per cent. While growth numbers of US have also been lowered, the downward revision is sharper in the Euro area, which is at the epicenter of the war.
Inflation biggest worry
There are signs of macro indicators improving for Indian economy, but raging inflation, which has now become broad-based and is spreading across non-food and no-fuel items, is a major cause for worry.
The Monetary Policy Committee of the Reserve Bank of India had also noted that the Indian economy appears capable of weathering the deterioration in geopolitical conditions, but it would be prudent to continuously monitor the balance of risks.
“On the other hand, the worsening external environment, elevated commodity prices and persistent supply bottlenecks pose formidable headwinds, along with volatility spillovers from monetary policy normalisation in advanced economies,” the MPC had noted.
No negative growth
Madan Sabnavis, Chief Economist at Bank of Baroda, noted that growth is sure to be impacted by inflation and at some point of time it would hurt consumption and demand. However, he does not expect a scenario of negative growth or stagflation.
“We believe our current growth forecast of 7.4—7.5 per cent is likely to go down by further 25 bps on account of the higher borrowing cost to curtail demand,” he said.
There is expectation of a further hike in rates by the RBI that could to some extent impact investments by small and medium enterprises. Another round of price hikes by companies is also likely, said Sabnavis.
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