India on Track to Post World-Beating Growth as Spending Revives

(Bloomberg) -- India is set to regain its position as the world's fastest growing major economy this year, but any euphoria is likely to be tempered by concerns around a resurgent virus outbreak.

Gross domestic product will grow 9.2% in the fiscal year ending March 2022, according to the first official estimate released by the Statistics Ministry Friday. That's slightly slower than a 9.5% expansion forecast by the Reserve Bank of India as well as the economists surveyed by Bloomberg.

With one quarter still left in the fiscal year and parts of the economy already facing fresh curbs to stem the omicron variant, the estimate will likely undergo revisions. The uncertainty spawned by the pandemic has so far kept fiscal and monetary policies accommodative to aid the a durable recovery, even as global peers have begun dialing back stimulus measures to combat inflation.

A sustained pace of growth is key to attracting investors to India, which is in the midst of a massive privatization drive, besides boosting manufacturing and creating jobs.

“We do have pockets of revenge demand coming in spurts but consumption still needs some hand-holding,” said Shubhada Rao, founder at QuantEco Research in Mumbai, who reckons that the impact of India's ongoing third virus wave may have been factored in these estimates. “We are looking at 7.5% growth next year.”

HSBC Sees Virus Surge Slowing Indian Economic Growth This Year

Digging Deeper

Gross value added, a key input of GDP that strips out the impact of taxes on products, is seen increasing 8.6%. Manufacturing output is estimated to rise 12.5%, while mining sector is seen expanding 14.3%. Agriculture, which provided some cushion to the economy last year, is projected to grow 3.9%
Gross fixed capital formation, a proxy for investment, is forecast to increase 15%, whereas government spending is seen increasing 7.6%. The ministry sees a 6.9% jump in consumption as pent-up demand drove sales
The growth numbers, which benefit from last year's sharp contraction, will serve as a key input to Finance Minister Nirmala Sitharaman's annual federal budget, due to be presented next month
India's growth is seen moderating to 8.5% next year, according to a forecast by the International Monetary Fund released in October