Even as India’s GDP in October-December or Q3 showed ‘weaker growth’ of 5.4 per cent, experts remained sceptical of any improvement in the next quarter too as the geopolitical escalation will likely raise oil prices, expand import bills and threaten sharp rupee depreciation. According to latest data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday, India’s economy grew a moderate 5.4 per cent in the October-December quarter, against 8.5 per cent in the previous quarter. The growth in GDP during 2021-22 is estimated at 8.9 per cent as compared to a contraction of 6.6 per cent in 2020-21. The government had projected 9.2 per cent growth for the current year in its first advanced estimates in January.
“The slowdown of GDP growth to 5.4 per cent yoy in Q4 2021 from 8.5 per cent in Q3, confirms our view that the recovery lost momentum in the last quarter of the year. Indeed, the extent of the slowdown was even larger than expectations,” said Priyanka Kishore, Head of India and South East Asia, Macro and Investor Services at Oxford Economics. “The weaker growth in 3QFY22 reflected kicking in of high base effects and consolidation of activity,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
Recovery to be hit in Q4, near term shocks in sight
Madhavi Arora, Emkay: “The economic recovery might see a minor bump down in 4QFY22 led by mild omicron wave, while the current geopolitical escalation may lead to potential global energy trade and price disruptions and weigh on growth. We assume the energy supply shock may resolve in coming months and likely will not leave a lasting mark on the global and domestic expansion. However, it would clearly have a near term negative impact.”
The sectoral contribution
The Q3 FY 2021-22 GDP growth rate stands at 5.4 per cent, of which growth rate of agriculture, forestry and fishing stands at 2.6 per cent, mining & quarrying at 8.8 per cent, manufacturing at 0.2 per cent, electricity, gas, water supply & other utility services at 3.7 per cent, construction at (-)2.8 per cent, trade, hotels, transport, communication & services related to broadcasting at 6.1 per cent, financial, real estate & professional services at 4.6 per cent and public administration, defence & other services at 16.8 per cent.
Rajani Sinha, Chief Economist and National Director – Research, Knight Frank India: “The slowdown in the manufacturing sector can be attributed to supply chain disruptions and semi -conductor shortages. The impact of the Omicron wave will be seen in the Q4 GDP data. However, broadly with Covid concerns subsiding, economic indicators are expected to improve.”.
Madhavi Arora, Emkay: “Growth was slower in mining and manufacturing, partly owing to supply chain disruptions, led by the auto sector while sequential easing in corporate profitability also was reflecting a weaker quarter. Services led the 3Q growth, again helped majorly by government spending.”
Priyanka Kishore, Oxford: “Industry contributed just 0.1ppt to overall growth. Services growth was more resilient at 8.2 per cent yoy, primarily due to robust public administration spending. Excluding public administration and agriculture, GVA growth slowed to 3 per cent in Q4 from 7.3 per cent in Q3.”
A revival nonetheless
Taking into consideration the ongoing pandemic and the third wave impact on the economic activity during Q3 2021-2022, the economy has, nonetheless, ‘recovered from the severe contraction of FY 2020-21’. Private consumption and government spending has increased, and is expected to push growth.
Pradeep Multani, President, PHD Chamber of Commerce and Industry: ” Going ahead, the drivers of household consumption need to be further strengthened to enhance the aggregate demand as it will have an accelerated effect on expansion of capital investments.”
Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd: “Details suggest that final consumption (private + govt) grew 4.1 per cent, while investments grew 7.1 per cent last quarter. Within (real) investments, while government capex grew 40.4 per cent, private capex is estimated to have grown only 4 per cent.”
The impact of geopolitical situation
While there may be expectations of recovery in the next quarter keeping in view the increase in government spending, etc, the current geopolitical situation escalated by the Russia-Ukraine war has worried economists and experts.
Nish Bhatt, Founder & CEO, Millwood Kane International: “While the high spending, capex heavy budget announced by the government is likely to help with an upward curve in growth rate in FY23, a further spike in crude prices due to geopolitical tension remains a huge risk for India’s growth rate going forward.”
Rajani Sinha, Knight Frank: “The scope of rising inflation continues to threaten sustainable consumption recovery. Further headwinds to India’s domestic growth are likely to arise from sharp rise in oil prices causing expansion in import bills and threat of sharp rupee depreciation. The Russia- Ukraine standoff also poses some risk to global growth, with repercussions on India’s exports.”
Priyanka Kishore, Oxford: “With global oil prices now expected to remain above $100 per barrel until the early stages of H2 2022, due to Russia’s invasion of Ukraine, and other commodity prices also pushing higher, India’s growth is likely to remain relatively subdued throughout most of 2022. We recently lowered our 2022 GDP growth forecast to 7.7 per cent from 7.9 per cent, while raising the inflation forecast to 6.3 per cent from 5.8 per cent. We estimate that India’s 2022 GDP growth will likely be around 0.2ppt lower than the current baseline, while the revision to the CPI forecast could be substantially larger, up by between 0.5-0.8ppt.”
