The government on Friday estimated the economic growth for the 2021-22 fiscal year at 9.2 per cent, expecting limited impact of the third Covid wave on the economy. With this, the size of India’s economy is expected to swell to $3.2 trillion. Also, this estimate is the highest in nearly two decades.

Covid effect uncertainty

Releasing the First Advance Estimate for FY22, National Statistical Office said: “These are early projections for 2021-22. Actual performance of various indicators, actual tax collections and expenditure incurred on subsidies in the following months, fresh relief measures for the vulnerable sections (such as providing free foodgrains which has now been extended till March 2022) and other measures, if any, taken by the government to contain the spread of Covid-19 would have a bearing on subsequent revisions of these estimates.”

The government number is, however, lower than the RBI estimate of 9.5 per cent, closer to India Ratings & Research revised forecast of 9.3 per cent, but higher than the projections by global and domestic agencies; some had put it under 9 per cent. Data show that the agriculture sector continues to shine. Manufacturing and construction have shown good growth making an impact on the overall industrial scenario. The growth in agriculture and industry was higher than even in 2019-20 (FY20). The services sector has grown over FY21, but, overall, lags FY20.


Nominal growth up

According to DK Srivatsava, Chief Policy Advisor with EY, at 9.2 per cent growth, the magnitude of the 2021-22 real GDP, estimated at ₹147.5-lakh crore, would be only marginally above 2019-20’s ₹145.7-lakh crore — a growth of 1.3 per cent over the pre-Covid GDP level. One positive feature of the GDP estimate is the nominal growth overtaking real growth by 8.4 percentage points. This is mainly due to a high implicit price deflator (IPD)-based inflation of 7.7 per cent.

“The revival of the economy in 2022-23 would critically depend on containing the adverse impact of Covid’s third and any subsequent waves to the minimum. Signals from the global economy indicate continued supply-side rigidities and a likely lowering of India’s export growth due to the depressing effects of Covid’s current surge,” he said. Commenting on the GDP estimates, Swati Arora, Economist with HDFC Bank, said given that H1 FY22 (April-September) growth stood at 13.7 per cent (inflated by a low base from last year), the annual number estimates a growth of 5.6 per cent in H2 (October-March) FY22.

Fiscal deficit cushion

“As the First Advance Estimate for FY22 GDP is extrapolated from past trends (data till November 2021), we see some upside for the Q3 FY22 figure and downside risk to Q4 FY22 growth due to the Omicron effect. Nominal GDP is estimated to expand by 17.6 per cent in FY22, higher than the 14.4 per cent assumed in Budget 2021-22. This is likely to provide a cushion of 30 bps to the fiscal deficit (as a percentage of GDP),” she said.

M Govind Rao, Chief Economic Adviser with Brickwork Ratings, said that an increase in the nominal GDP at 17.6 per cent provides additional expenditure space for the government. Per the nominal GDP estimates, the budgeted fiscal deficit for FY22 works out to 6.5 per cent of GDP. “Despite the shortfall in disinvestment proceeds and additional demand for supplementary grants, the fiscal deficit target of 6.8 per cent of GDP is likely to be achieved in FY22. The increase in nominal GDP also results in a substantial decline in the debt-to-GDP ratio, which is the focus of FRBM,” he said.