The economy will grow by 9.2%, recover the losses of the Covid year
SUPPORTED BY a slight increase in output from the agriculture, mining and manufacturing sectors, India’s gross domestic product (GDP) is expected to increase 9.2% in the current fiscal year or 2021-2022, according to initial estimates progress published by the National Statistics Office. (ONS) Friday. In 2020-21, a nationwide lockdown forced by the Covid-19 attack left the economy battered by shrinking GDP 7.3 percent.
The ONS estimate for the current fiscal year is somewhat lower than the RBI’s GDP projection in its December 2021 policy review. The central bank had forecast the 9.5% economy growth, with the rider that this did not imply any resurgence of Covid-19 infections in India.
The RBI forecast that the third quarter (October-December 2021) and the fourth quarter (January-March 2022) would increase by 6.6% and 6% respectively. Real GDP grew 8.4% in July-September 2021, following a sharp rise of 20.1% in April-June 2021.
the Rising case of the Omicron variant Corona virus has prompted several economists to lower growth projections for this year, with fourth-quarter numbers in particular likely to be strained.
In summary, ONS data suggests that both absolute GDP and gross value added (GVA) will recover and improve the figures for the year pre-Covid 2019-2020. While public spending will remain strong, investments have also increased and are expected to be above the level of the pre-Covid or 2019-2020 year. What is probably hurting the economy the most – consumer demand, which accounts for 55% of GDP – is expected to remain sluggish, below pre-Covid (2019-20) levels.
On the expenditure side, the government’s final consumption expenditure is 7.6 percent higher than in FY21 and 10.7 percent higher than in FY20. has also recovered, as evidenced by the dynamism of gross fixed capital formation (GFCF). GFCF is expected to increase by 14.9% in FY22 from 2020-21 and 2.6% from pre-pandemic 2019-2020.
The lingering impact of the Covid-19 pandemic is still visible on private final consumption expenditure (PFCE) – a proxy for private spending or consumer demand – and the service sector. The CCTB increases by 6.8 percent; 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 shifted from people in the high consumption category to people in the high saver category. Then you get lower consumption even with relatively high income growth. The savings rate has increased. The investment data is reasonably good, which is a good sign. The change in inventories, which reflects the inventories held by producers, is high. It is part of the production but is not sold. The valuables are also huge, seem to suggest that people are buying jewelry, works of art, a sign of inequality and change in the distribution of income, ”said former chief statistician of India , Pronab Sen.
Signals for the budget
With a budget in seven weeks, growth estimates tell the Union Minister of Finance that GDP and GVA for 2021-2022 will likely be better than figures for the pre-Covid year (2019-20). The most important signal is that private spending or consumer demand has remained sluggish and below pre-Covid levels of 2019-2020.
Among sectors, agriculture is expected to grow 3.9% in FY22 versus 3.6% the previous year, while manufacturing is expected to grow 12.5% versus a contraction of 7.2 % in the previous fiscal year. Electricity production is estimated to increase 8.5 percent from 1.9 percent last year.
Trade, hospitality and transport services are forecast to grow 11.9% due to the base effect – in 2020-21 it had contracted sharply by 18.2%. In absolute terms, this service segment is still estimated to be below pre-pandemic levels.
“Compared to pre-Covid performance in FY2020, anticipated estimates predict an anemic increase of 1.3% and 1.9%, respectively, for GDP and GVA in FY2022,” a said Aditi Nayar, Chief Economist, ICRA Limited. She pointed out that the PFCE and trade, hotels, transport, communications, etc., are behind by 2.9% and 8.5% on their levels for fiscal year 2020.
While the real GDP growth rate is estimated at 9.2%, nominal GDP, which takes inflation into account, is estimated at 17.6% for 2021-2022 against a contraction of 3% in 2020 -2021. This reflects high prices, with inflation estimated at 8.4% for the whole year (inflation = nominal GDP – real GDP).
The net national income per capita in real terms is estimated at Rs 1,06,975 in FY22, less than Rs 1,07589 in FY20; suggesting that the average citizen is worse off than two years ago.
The change in stocks is observed 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 forming part of the GDP are estimated at Rs 2.94 lakh core in FY 22, compared to Rs 1.67 lakh crore last year.
The first advance estimates, obtained by extrapolating data over seven months, are released early to help officials in the Union’s finance ministry and other departments outline the Union’s budget for 2022-2023. Analysts say it is possible that consumption and investment growth will likely be revised downwards once there is more clarity on the full impact of Covid in the last quarter. The second anticipated GDP estimates will be released on February 28.
“Our feeling is that after rising from 6% to 6.5% in the third quarter of FY22, the expansion of GDP is expected to fall below 5% in the current quarter … the widening of immunization coverage… we currently set Omicron’s impact on GDP growth in the fourth quarter of fiscal 2022 at around 40 basis points, which is a slight downside to our 9% GDP growth forecast for fiscal year 2022, ”said Nayar.
Bank of Baroda Chief Economist Madan Sabnavis said the 9.2% growth in the current fiscal year would translate to just over 1.3% in FY20. “… this indicates that we have roughly recouped our GDP loss last year … Even manufacturing performance would be blunt from 12.5% to 4.5% from FY20. one estimate that could go wrong is capital formation where it is assumed to drop from 27.1% to 29.6%. With the decline in private investment and the reduction in investment by states, it will certainly be difficult to achieve this number, ”he said.