SUPPORTED BY an uptick in the farm, mining and manufacturing sector outputs, India’s gross domestic product (GDP) is projected to grow 9.2 per cent in the current financial year or 2021-22, according to the first advance estimates released by the National Statistical Office (NSO) on Friday. In 2020-21, a national lockdown forced by the Covid-19 onslaught had left the economy battered with GDP contracting 7.3 per cent.
The NSO estimate for the current financial year is a tad lower than the RBI’s GDP projection in its December 2021 policy review. The central bank had projected the economy to grow 9.5 per cent, with the rider that this assumed no resurgence of Covid-19 infections in India.
The RBI has projected the third quarter (Oct-Dec 2021) and fourth quarter (Jan-Mar 2022) to grow 6.6 per cent and 6 per cent, respectively. Real GDP had grown 8.4 per cent in July-September 2021, after a sharp 20.1 per cent jump in April-June 2021.
The rising cases of the Omicron variant of the corona virus has prompted several economists to lower growth projections for this year, with particularly the fourth quarter numbers likely to come under strain.
In a nutshell, the NSO data suggest that the absolute GDP and Gross Value Added (GVA) will claw back and better the numbers in the pre-Covid year of 2019-20. While government spending will remain buoyant, investments too have picked up and are estimated to be more than the level in the pre-Covid year or 2019-20. What probably hurts economy the most – consumption demand, which is 55 per cent of the GDP – is estimated to remain sluggish, below the pre-Covid year (2019-20) levels.
On the expenditure side, government final consumption expenditure is seen 7.6 per cent higher than FY21 and 10.7 per cent higher than FY20. Investment activity has picked up too, as reflected by the buoyant gross fixed capital formation (GFCF). GFCF is seen growing 14.9 per cent in FY22 compared with 2020-21 and 2.6 per cent higher than pre-pandemic year of 2019-20.
The lingering impact of the Covid-19 pandemic is still visible on the private final consumption expenditure (PFCE) – a proxy for private spending or consumption demand – and the services sector. PFCE is seen growing 6.8 per cent; in absolute terms, however, it is seen at Rs 80.80 lakh crore for FY22, lower than the pre-pandemic level of Rs 83.21 lakh crore.
“Consumption is seriously down. Income has shifted from high consumption category people to high saver category people. Then what you get is lower consumption even with relatively high-income growth. Savings rate has gone up. Investment data is reasonably good, that’s a good sign. Change in stocks, which reflects inventories held by producers, is high. It’s part of production but not getting sold. Valuables are also huge, seems to suggest people are buying jewellery, artwork, a sign of inequality and change in income distribution,” former Chief Statistician of India Pronab Sen said.
Signals for the Budget
With Budget in seven weeks, the growth estimates tell the Union Finance Minister that both the GDP and GVA for 2021-22 will likely better the pre-Covid year (2019-20) numbers. The biggest signal is that private spending or consumption demand has remained sluggish and below pre-Covid levels of 2019-20.
Among sectors, agriculture is seen growing at 3.9 per cent in FY22 as against 3.6 per cent growth in the previous year, while manufacturing sector is seen growing 12.5 per cent as against a 7.2 per cent contraction last fiscal. Electricity generation is estimated to grow 8.5 per cent as against 1.9 per cent last year.
Trade, hotels, and transport services are projected to post a growth of 11.9 per cent owing to the base effect – in 2020-21, it had contracted sharply by 18.2 per cent. In absolute terms, this services segment is still estimated to be below pre-pandemic levels.
“Compared to the pre-Covid performance of FY2020, the advance estimates project an anaemic rise of 1.3% and 1.9%, respectively, for GDP and GVA in FY2022,” said Aditi Nayar, Chief Economist, ICRA Limited. She pointed out that PFCE and trade, hotel, transport, communication, etc, are trailing their FY2020 levels by 2.9 per cent and 8.5 per cent.
While the real GDP growth rate is estimated to be 9.2 per cent, the GDP in nominal terms, which factors in inflation, is estimated at 17.6 per cent for 2021-22 as against a contraction of 3 per cent in 2020-21. This reflects high prices, with inflation estimated to be 8.4 per cent for the full year (inflation = nominal GDP – real GDP).
Per capita net national income in real terms is estimated to be Rs 1,06,975 in FY22, lower than Rs 1,07,589 in FY20; suggesting that the average citizen is worse off compared with two years ago.
Change in stocks is seen at Rs 1.67 lakh crore in FY22, higher than Rs 1.54 lakh crore in FY21 and Rs 1.58 lakh crore in FY20. Valuables as part of GDP is estimated to be Rs 2.94 lakh core in FY22 as against Rs 1.67 lakh crore last year.
The first advance estimates, obtained by extrapolation of seven months’ data, are released early to help officers in the Union Finance Ministry and other departments frame the broad contours of Union Budget 2022-23. Analysts say there is a possibility that growth in consumption and investment will likely be revised downwards once there is more clarity on the full impact of Covid in the last quarter. The second advance estimates of GDP will be released on February 28.
“Our sense is that after a 6-6.5% rise in Q3 FY22, the GDP expansion is set to slip below 5% in the ongoing quarter…the widening restrictions triggered by Omicron will thwart the nascent recovery in the contact-intensive services, notwithstanding the widening vaccine coverage… we currently peg the impact of Omicron on GDP growth in Q4 FY2022 at around 40 bps, posing a mild downside to our FY2022 GDP growth forecast of 9%,” Nayar said.
Bank of Baroda’s Chief Economist Madan Sabnavis said growth of 9.2 per cent during the current fiscal would translate to just around 1.3 per cent over FY20. “…this indicates we have just about recouped our loss in GDP last year…Even manufacturing performance would get blunted from 12.5% to 4.5% when compared over FY20. The estimate that could go awry is capital formation where it is assumed that it will increase from 27.1% to 29.6%. With private investment down and states curbing their capex, realising this number will be difficult for sure,” he said.