First Advance Estimates peg FY22 GDP growth at 9.2%

8 Jan 2022 , 07:06 PM

Till date the government has already announced GDP data for the Mar-21 and the Sep-21 quarters. On 07th January 2022, the National Statistical Office, MOSPI, released its first advance estimates (AE) of GDP for the financial year 2021-22. The second advance estimate will be released on 28-Feb along with the Dec-21 quarter GDP numbers, which will be closer to the real GDP picture. The chart captures 12 quarters GDP.

Data Source: MOSPI

The first AE of 9.2% estimated by the MOSPI for FY22, is lower than the RBI estimate of 9.5%, but apparently the first AE has also factored in negative impulses that could be caused by Omicron in a base case scenario.

How are GDP and GVA likely to pan out in FY22?

In the last few years, the gross value added (GVA) has emerged as a veritable alternative to GDP to gauge the actual output growth. GVA is the GDP adjusted for the impact of indirect taxes and subsidies. Let us look at GDP and GVA growth projected for FY22 over FY21 and FY20.

Let us look at GVA first. GVA is estimated to grow 8.6% yoy over FY21 to Rs135.23 trillion. However, the 8.6% yoy growth can be misleading due to the base effect as FY21 was an exceptionally weak year due to the pandemic. Hence if we compare the FY22 projected GVA to the FY20 GVA of Rs132.71 trillion, the GVA is actually 1.89% higher compared to the pre-COVID levels of GVA. At least, the good news is that the COVID impact is wiped out.

Let us look at GDP now. GDP is estimated to grow 9.2% yoy over FY21 to Rs147.54 trillion. However, this 9.2% yoy growth can be misleading due to the base effect as FY21 was an exceptionally weak year due to the pandemic. If we compare the FY22 projected GDP to the FY20 GDP of Rs145.69 trillion, then GDP is 1.27% higher compared to the pre-COVID levels of GDP. Again, the good news is that COVID impact appears to have been finally wiped out.

GDP growth is OK, but what about lead indicators?

The key is to understand what will be the components of the GDP growing to Rs147.54 trillion in FY22 as per first AE. In all the cases, we will look at FY22 over FY20 to neutralize the pandemic effect. Here are the highlights of the GDP components.

a) Let us first look at private final consumption. It has fallen from Rs83.22 trillion in FY20 to Rs80.81 trillion in FY22. That is negative growth of -2.90%. Clearly, private consumption is still way below the pre-COVID levels which shows low consumer confidence.

b) Government consumption expenditure has moved from Rs15.42 trillion in FY20 to Rs17.07 trillion in FY22. That is positive growth of 10.73%. Government initiated spending has been a key factor in driving GDP growth in FY22 as per the AE.

c) Gross Fixed Capital Formation has moved from Rs47.30 trillion in FY20 to Rs48.52 trillion in FY22. That is positive growth of 2.56%. Capital formation has picked up since pre-COVID levels, although it is still too small to energize the capital cycle.

d) The head of VALUABLES has moved from Rs1.65 trillion in FY20 to Rs2.94 trillion in FY22. That is positive growth of 78.71%. People are diverting a lot of spending into assets like gold and jewellery in hope of value accretion; something not too productive.

e) Merchandise Exports increased from Rs28.27 trillion in FY20 to Rs31.40 trillion in FY22. That is positive growth of 11.09%. Exports as a sub-set of trade has been a very important driver of GDP in FY22.

f) Merchandise Imports has surged from Rs33.17 trillion in FY20 to Rs37.08 trillion in FY22. That is positive growth of 11.78%. Imports have to be correlated with the rise in valuables as a chunk of the trade deficit has arisen from record gold imports in 2021.

To sum it up, private consumption continues to lag the FY20 levels while government spending has tried to fill the gap and gross capital formation (GCF) is marginally in the positive. But the real thrust to GDP growth in FY22 is likely to come from Trade and Valuables. The latter is not very encouraging from a productive growth perspective.

How does the sectoral GDP picture look like in FY22?

The first advance estimates (AE) pegged the GVA growth at 8.6% for FY22 and the GDP growth at 9.2% for FY22. Here is a quick look at how the GVA growth (net of taxes and subsidies) is likely to pan out in FY22.

Industry Segment	FY22 GVA (Rs Trillion)	FY22 over FY21	FY22 over FY20
Agriculture, Forestry	Rs21.20 trillion	3.9%	7.7%
Mining, Quarrying	Rs3.37 trillion	14.3%	4.6%
Manufacturing	Rs23.70 trillion	12.5%	4.4%
Power, Gas, Water	Rs3.32 trillion	8.5%	10.6%
Construction	Rs10.48 trillion	10.7%	1.2%
Trade, Hotels, Transport	Rs24.70 trillion	11.9%	-8.5%
Financial, Realty	Rs29.88 trillion	4.0%	2.5%
Public admin, Defence	Rs18.58 trillion	10.7%	5.6%

Data Source: MOSPI

Clearly, the good news is that manufacturing is now well above the pre-COVID levels. The only sector that is below pre-COVID levels is the trade and hotels segment which is -8.5% lower than FY20 levels. But that is understandable considering it is a high-contact business. Growth appears to be on track!