India’s gross domestic product (GDP) growth slowed to a four-quarter low of 4.1% during the January-March period, from 5.4% in the preceding quarter, as manufacturing output shrank, provisional national income estimates released on Tuesday show. As a result, full-year growth came in at 8.7% — a tad lower than the 8.9% pace projected in February.
Gross Value-Added (GVA) in the economy is estimated to have grown 8.1% in 2021-22, slightly lower than the 8.3% projected by the National Statistical Office (NSO) earlier. The GDP had shrunk 6.6% in 2020-21, while the GVA had contracted 4.8% in the wake of the COVID-19 lockdowns.
The Finance Ministry said the latest national income estimates ‘establish full economic recovery’ as real GDP in 2021-22 exceeded the pre-pandemic levels of 2019-20. On a quarter-to-quarter basis, it argued real GDP growth was 6.7% in the fourth quarter (Q4) of 2021-22, reflecting a ‘sustained growth momentum’ entering the current fiscal year.
The contact-dependent and employment-intensive trade, hotels, transport, communication & services related to broadcasting sector continued to languish below pre-pandemic levels, ending FY22 still 11.3% lower than 2019-20 GVA levels.
Overall GVA growth slowed to 3.9% in the January-March 2022 quarter, from 4.7% in the preceding period. Worryingly, manufacturing sector output shrank 0.2% from a year earlier.
This was the first contraction in factories’ output since the massive 31.5% fall in the first quarter of 2020-21 amid the strict national lockdowns.
Economists pointed out that real GDP was only ‘a subdued’ 1.5% higher than pre-COVID levels and ascribed the lower than projected full-year growth to the effects of the Omicron variant of COVID-19, high commodity prices and inflation as well as data corrections for the first half of the year.
A downward revision in growth rates for the first two quarters of 2021-22 also affected the full year’s growth rate vis-à-vis the last estimates released on February 28. The 20.3% GDP growth estimated earlier for Q1 was pared to 20.1%, while the same number was revised to 8.4% from 8.5% for Q2.
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Chief Economic Advisor V. Anantha Nageswaran said the real GDP numbers were pretty much in line with earlier estimates, so it was difficult to make the argument that the growth rate was lower than anticipated earlier.
For the full year, GVA from agriculture and the financial, real estate & professional services sectors, the only two sectors that grew in 2020-21, rose by 3% and 4.2% in 2021-22, compared with 3.3% and 2.2% in the previous year, respectively.
Five major segments of economic activity recorded GVA growth of about 10% or more in the last fiscal, compared with sharp contractions in 2020-21, led by public administration, defence & other services whose GVA rose 12.6% from 5.5% a year earlier.
GVA from mining and quarrying as well as construction, which had contracted 8.6% and 7.3% in 2020-21, bounced back to clock 11.5% growth in 2021-22. GVA from trade grew 11.1% from a steep 20.2% fall in 2020-21, while manufacturing GVA rose 9.9% from a 0.6% drop the previous year.
The Finance Ministry highlighted that the investment rate in the economy rose to 33.6% in Q4, the highest since Q3 of 2019-20. Moreover, though manufacturing sector shrank from a year earlier, it grew sequentially at 14.2% during Q4, it pointed out.
The recovery in investment demand was a bright spot, said EY India’s chief policy advisor and economist D.K. Srivastava. However, the contribution of net exports to real GDP growth was negative at (-)2.9%. and although private final consumption expenditure grew 7.9% in 2021-22, its magnitude was only ₹1.2 lakh crore higher than 2019-20, he pointed out.
Going forward, interest rate hikes would start impacting real GDP towards the end of this fiscal year, but growth could get a leg-up from ‘a strong bounce-back in contact-based services’, said Crisil chief economist Dharmakirti Joshi. “But headwinds from slower global growth and higher oil prices have tilted the risks downwards to our forecast of 7.3% for 2022-23,” he cautioned.
Managing the troika of growth, inflation and fiscal balance was the top challenge for India’s policy makers, the CEA said, but emphasised that India was better off than several developed countries with respect to inflation as well as other global headwinds that threaten growth.
“The silver lining is that India has paid its growth dues in the previous decade by fixing balance sheets in the corporate and financial sector. The non-food credit growth is beginning to creep into double digits, and we expect that after a decade of stagnation, bank credit to GDP ratio should start looking up in the decade to come,” he said.
Dismissing concerns of interest rate increases impacting growth, Mr. Nageswaran said: “In general, interest rates becoming normal may not necessarily be an anti-growth move if they are coming from a very low rate. The price of credit should reflect the demand for credit and the central bank’s confidence in raising rates reflects the belief that the recovery is taking root.”
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