Still in the woods

Updated on: May 31, 2022

NEW DELHI, 07/06/2021. People buying grocery at the INA Market, as the Delhi Govt allowed opening of markets following the unlocking process in New Delhi on Monday, June 07, 2021. Photo: MOORTHY RV / The Hindu | Photo Credit: MOORTHY RV

Q4FY22 GDP data show the scars of Omicron and Ukraine war even as fresh challenges loom over economic prospects for FY23

The NSO’s latest provisional estimates of India’s GDP growth for Q4 and full-year 2021-22 are largely devoid of negative surprises. The topline numbers, which peg India’s real GDP growth at 8.7 per cent and nominal growth at 19.5 per cent for FY22 are unerringly close to the NSO’s second advance estimates in end-February. A positive takeaway is that all three economic engines — private consumption which grew by 7.9 per cent year-on-year, government consumption expenditure (up by 2.6 per cent) and capital investments which grew by 15.8 per cent — now seem to be firing and have managed to exceed their pre-pandemic levels of activity. Real GDP growth of 4.1 per cent for Q4 FY22 has managed to beat the expectations of most private forecasters at 3.7-3.8 per cent.

But a deeper dive into quarterly trends does reveal some pain points. After rebounding on the back of a low base, mining and manufacturing seem to be steadily losing momentum, growth rates dwindling from 8.8 per cent and 0.2 per cent in Q3 to 6.7 per cent and a negative 0.2 per cent respectively in Q4. Weak demand due to Omicron and global supply chain disruptions due to the Ukraine war appear to have contributed to this slowdown. While the Covid dent to demand is waning fast, sectors such as automobiles and consumer goods may continue to grapple with supply-chain issues for which there are no quick fixes. Two, the expected pickup in high-contact services such as trade, transport and communications didn’t materialise in Q4, with their growth rate at 5.3 per cent compared with 6.1 per cent in Q3. Despite high hopes for a housing revival, both construction and real estate have shown slower sequential growth too. One hopes that these sectors have gained traction from April onwards, with the economy fully unlocked. Three, though agricultural growth has accelerated to 4.1 per cent in Q4 (2.6 per cent in Q3), the possibility of a truant monsoon threatens a continuation of this green patch. Overall, it appears as if yet again it is up to government expenditure both on the revenue and capital fronts, to keep the economic engine revving until private demand and investments return in full force.

Fresh challenges loom over India’s economic prospects for FY23, in the form of a global slowdown (even if not recession), elevated food and crude oil prices which are worsening the trade deficit and mounting pressure on the Reserve Bank of India to front-end its rate hikes to rein in inflation and ward off a run on the rupee. But there are offsetting factors. For one, with the Centre announcing tariff cuts and subsidy hikes to soften the bite of inflation on the common man and India well-placed on the food front, it may face a lower inflation risk than other economies. Two, India’s high nominal GDP growth for the first time in many years is supportive of healthy incomes and tax buoyancy, which can help the government deliver on its capex plans. Hopefully, these factors will help India ward off the stagflation risks that are threatening the developed world.

Published on May 31, 2022
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