Up in the Air
Despite being one of the fastest-growing major economies, India’s GDP growth was subdued in the fourth quarter of 2021-22
THE INDIAN ECONOMY GREW its slowest in a year with a 4.1 per cent increase in GDP (gross domestic product) during Q4 of 2021-22. The National Statistical Office (NSO) estimates that the economy grew by 8.7 per cent during fiscal year 2021-22, lower than the earlier estimate of 8.9 per cent. It had grown by 20.3 per cent, 8.5 per cent and 5.4 per cent, respectively, in the first three quarters of FY22. According to experts, a favourable base effect helped propel India’s 2021-22 GDP growth rate to one of the highest in the past many years, making it one of the fastest-growing major economies in the world.
In Q4 of the previous fiscal, private final consumption expenditure (PFCE) and investment growth were muted, weighing down growth drivers like manufacturing, construction and services. PFCE rose by 1.8 per cent year-on-year, while gross fixed capital formation—a proxy for investments—was up 5.1 per cent during the quarter. Meanwhile, gross value addition in the manufacturing sector contracted by 0.2 per cent during the quarter. India’s annual per capita income at constant prices, at `91,481 in FY22, remained below pre-pandemic levels. The number was `94,270 in FY20; in FY21, it was `85,110.
“India’s economic growth showed resilience despite pressure in Q4 due to the war in Ukraine. The economy grew at a slower pace on a QoQ basis, but on a YoY basis, it showed an improvement in consumer spending and investment. In the next few months, commodities and crude oil may pose a risk to global growth,” says D.R.E. Reddy, CEO and Managing Partner of CRCL LLP, a food services company, adding that a normal monsoon will ease inflationary pressures. “However, we expect the RBI to continue its rate hike cycle.”
According to ratings agency ICRA, the growth of 8.7 per cent in FY22 was mildly higher than their 8.5 per cent estimate. “High frequency data for April and early May 2022 suggests that global headwinds have not dented volume growth. Nevertheless, business margins are likely to be compressed amidst an incomplete pass-through of input price pressures while higher inflation would constrain demand growth, notwithstanding the excise duty cuts on fuel. Aided by a low base, ICRA expects GDP growth to print at an optically high 12-13 per cent in Q1FY23,” says Aditi Nayar, Chief Economist of ICRA.
According to a report by Kotak Institutional Equities, the year ahead is clouded with uncertainties emanating from geopolitical developments and their impact on commodity prices. The report adds that going ahead, key challenges would be weakening consumption demand given the impact of costpush inflation; delayed pick-up in private sector investment given relatively weaker demand visibility along with increasing cost of borrowing; limited ability of the government to spend on public infrastructure; and weakening global growth.