New investment announcements in the current year look encouraging as around ₹8.6-lakh crore have been declared so far in the last seven months of FY22 (around ₹11 trillion reported last year).

With the private sector contributing around 67 per cent of this i.e., ₹5.80-lakh crore, it seems the private investment revival is on the horizon, said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI), in the latest edition of SBI Ecowrap.

India’s GDP grew by 8.4 per cent in Q2 FY22 on the back of the double-digit growth in ‘mining & quarrying and public administration, defence and other services’. The real GVA increased by 8.5 per cent, a tad higher than the GDP growth.

Nominal GDP growth jumped by 17.5 per cent, driven in part by a GDP deflator at 8.4 per cent. For Q2, seasonally adjusted real GDP growth is 6.6 per cent q-o-q compared to 10.36 per cent q-o-q non-adjusted real GDP growth. Core GVA, a proxy of private sector growth, expanded by 7.5 per cent – the highest since Q1 FY19.

“In H1 FY21, the country exhibited real GDP loss of ₹11.4-lakh crore (on y-o-y basis) due to the complete lockdown in April-May and partial lockdown in June-September. The situation has improved in FY22 and in H1 FY22, the real gain was around ₹8.2-lakh crore. This indicates that the real loss of ₹3.2-lakh crore still needs to be recouped to reach the pre-pandemic level,” Ghosh said.

Affected sectors

Sector-wise data indicates that ‘trade, hotels, transport, communication & services related to broadcasting’ are still the most affected sectors and the real loss of ₹2.6-lakh crore is still needed to be recouped in this sector.

Overall, the economy is still operating at 95.6 per cent of the pre-pandemic level (with the above-mentioned affected sectors still at 80 per cent) and should take one more quarter to recoup the losses.

In Q2 FY22, the FMCG sector reported a top-line y-o-y growth of 11 per cent while EBIDTA and PAT grew by 4 per cent each. However, the rural markets, which have shown good resilience thus far during the pandemic have slowed in the last couple of months as suggested by some of the industry majors.

However, the results of industry majors whose Q2 FY22 results have been declared (like Dabur) have still not shown a significant slowdown in the rural economy.

“The Q2 estimate of the GDP on the expenditure side largely retains the flavour of trends observed in Q1 FY22. Foremost in quarterly trends, the shares in real terms have decreased for private consumption, government consumption and exports, and have increased for imports and investments and valuables. The component which has also increased is the inventories which have surpassed the pre-Covid level of FY20,” SBI Ecowrap said.

Thus, accounting for the growth in production and concomitant accumulation of inventory, the demand side has not recovered even after the opening of the economy. The massive jump in valuables which implies savings to the tune of 2 per cent of the GDP has moved into precious metals given their inflation hedging property and postponement of marriage in FY21, it added.

“We now expect the GDP growth for FY22 to top 9.5 per cent of the RBI forecast. We believe that the real GDP growth would now be higher than the RBI’s estimate of 9.5 per cent, assuming the RBI growth numbers for Q3 and Q4 to be sacrosanct,” Ghosh said.

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