India GDP Grows 5.4% In Q3; Full-Year Growth Forecast Revised Lower

The Indian economy grew 5.4% in the October-December quarter and is likely to grow at 8.9% in 2021-22, according to the latest estimates released by the government's statistical office.

The second advance estimates peg GDP growth at 8.9% for FY22 compared to the first advance estimate of 9.2%. One reason for the change is the recent revision in FY21 GDP estimates to a contraction of 6.6% from the earlier estimated 7.3%. GDP growth for FY20 had been revised to 3.7% from 4% earlier.

Gross value added growth for FY22 is now pegged at 8.3% compared to 8.6% earlier.

Nominal GDP for FY22 is estimated to Rs 236.44 lakh crore, a growth of 19.4% over the previous year. This reflects the sharp rise in wholesale inflation in the economy.

For the third quarter of the current fiscal, the GDP growth of 5.4% compares to 8.5% growth in the second quarter. GVA growth stood at 4.7% in the October-December period compared to 8.4% in the preceding three months.

A Bloomberg poll of 35 economists had estimated Q3 GDP growth at 5.9%. For the full year, a Bloomberg poll of 36 economists had estimated GDP at 9%.

While an adverse base was expected to flatten growth in Q3 FY22, the initial estimates are "sorely below expectations, with a marginal rise in manufacturing and a contraction in construction that is surprising despite the heavy rainfall in the southern states," said Aditi Nayar, chief economist at ICRA.

The implicit GDP expansion of 4.8% for Q4 FY22 also looks optimistic, given the fallout of the third wave on contact-intensive services, and the expected adverse impact of the spike in commodity prices fueled by geopolitical tensions, Nayar said.

The growth recovery showed signs of fatigue, dragged by supply shortages, said Rahul Bajoria, chief India economist at Barclays. The impact of Omicron in January, albeit mild, could drag further on the recovery in the January-March quarter, he said.

Q3 GDP Trends

Year-on-Year

• Agriculture grew at 2.6% in Q3 compared to 3.7% in Q2.

• Mining grew by 8.8% in Q3 compared to 14.2% in the last quarter.

• Manufacturing grew 0.2% in Q3 compared to 5.6% in the preceding quarter.

• Electricity and other public utilities grew 3.7% against a growth of 8.5% in Q2.

• Construction grew -2.8% in Q3 compared to 8.2% in Q2.

• Trade, hotel, transport, communication grew by 6.1% compared to 9.5% in the previous quarter.

• The financial services sector grew 4.6% compared to 6.2% in the last quarter.

• The public administration segment grew 16.8% in Q3 compared to 19.5% in Q2.

Expenditure Trends

Year-on-Year

• Private consumption, reflected in private final consumption expenditure, grew 7% in Q3FY22 compared to 10.2% in Q2FY21

• Investments, as reflected by gross fixed capital formation, grew 2% during the October-December period, compared to 14.6% in the previous quarter.

• Government final consumption expenditure rose 3.4% in the third quarter over a year earlier, compared to 9.3% in the previous quarter.

FY22: Full Year Estimates

Year-on-Year

• Agriculture is estimated to grow by 3.3%in FY22, the same as the previous fiscal.

• Mining is estimated to grow by 12.6% compared to -8.6% in the last fiscal.

• Manufacturing growth is likely at 10.5% compared to -0.6% in FY21.

• Electricity and other public utilities growth is forecast at 7.8% against -3.6% in FY21.

• Construction is estimated to grow by 10% in FY22 compared to a contraction of 7.3% in FY21.

• Trade, hotel, transport, communication growth is estimated at 11.6% compared to a contraction of 20.2% in the previous fiscal.

• The financial services sector is estimated to grow by 4.3% compared to 2.2% in the last year

• The public administration segment is forecast to grow 12.5% in FY22 compared to -5.5% in FY21.

More Uncertainty

The third quarter data does not fully capture the impact of the third wave of Covid infections, which soared in the latter half of December. While the economic impact is likely to be lower than previous waves, the services sector may see a slowdown in the fourth and final quarter.

In addition, uncertainty, supply disruptions and higher commodity prices as a consequence of Russia's attacks on Ukraine could also skew the growth picture for the final quarter of the current fiscal and for next year.

"Though the third wave of Covid has now subsided and the likelihood is that the economic activities will gather further momentum in FY23, India Ratings believes both fiscal and monetary policy support is still needed particularly in view of the headwinds arising out of the geopolitical situation caused by the Russia Ukraine conflict," said Sunil Kumar Sinha, principal economist at India Ratings and Research.