India GDP estimated to grow at 9.2% in FY22

10 Jan 2022 , 02:44 PM

As per the first advance estimate of national income for FY22 released by the NSO (National Statistical Office) on Friday, India’s real GDP and GVA growth has been pegged at 9.2% and 8.6% respectively. The strong growth will lift real gross domestic product (GDP) 1.3% over the pre-Covid levels of FY20, but the underlying data showed consumer stress and weakness in the contact-intensive services sector.

Ms. Aditi Nayar, Chief Economist, ICRA Limited, “the advance estimates for real GDP and GVA growth as well as the nominal GDP expansion are broadly in line with our own expectations (9.0%, 8.8% and 17.5%, respectively).

The implicit GDP growth of 5.6% for H2 FY2022 built in by the NSO may not fully factor in the admittedly evolving impact of Omicron. Our sense is that after a 6.0-6.5% rise in Q3 FY2022, the GDP expansion is set to slip below 5.0% in the ongoing quarter, as per ICRA.

The YoY contraction in construction GVA projected by the NSO for H2 FY2022, reflects the high base as well as the disruption seen in Q3 FY2022 in Southern India on account of heavy rainfall. In contrast, the double-digit growth projected in mining and quarrying in H2 FY2022 is significantly higher than our own estimate of a low single digit rise.

The YoY growth projected by the NSO in the components of GDP in H2 FY2022 varies sharply from a muted 1.8% for private final consumption expenditure to a moderate 6.1% for gross fixed capital formation, to a rather high 13.9% for government final consumption expenditure. While we do expect the Government of India’s spending to be back-ended in H2 FY2022, this is similar to the situation in H2 FY2021, based on which we anticipate a lower growth of GFCE in the latter half of the current fiscal.

Compared to the pre-Covid performance of FY2020, the advance estimates project an anemic rise of 1.3% and 1.9%, respectively, for GDP and GVA in FY2022. Most conspicuous amongst the disaggregated data is the weak performance of private final consumption expenditure and trade, hotel, transport, communication etc., which are pegged to trail their FY2020 levels by 2.9% and a considerable 8.5%, respectively, underscoring the lingering impact of Covid-19 on the Indian economy.

The widening restrictions triggered by Omicron will thwart the nascent recovery in the contact-intensive services, notwithstanding the widening vaccine coverage. Amidst the ongoing uncertainty, 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 9.0%.”