ICRA : YoY GDP growth pegged at 6.2% in Q3 FY2022

16 Feb 2022 , 11:28 AM

ICRA expects the year-on-year (YoY) growth of the GDP and gross value added (GVA) at basic prices (at constant 2011-12 prices) in Q3 FY2022 to display a broad-based, base effect-led moderation to 6.2% and 6.0%, respectively, from the performance in Q2 FY2022 (+8.4% and +8.5%, respectively).

ICRA projects the GVA growth in services, industry, and agriculture, forestry and fishing at 8.2%, 4.2% and 2.5%, respectively, in Q3 FY2022 (10.2%, 6.9% and 4.5% in Q2 FY2022).

According to Ms. Aditi Nayar, Chief Economist, ICRA Ltd: “The economic recovery gained some traction in Q3 FY2022. Rising vaccine coverage and confidence levels instigated a cautious revival in the contact-intensive sectors. Additionally, robust merchandise and service sector exports supported economic activity in Q3 FY2022. While the YoY performance of manufacturing volumes was surprisingly feeble, price hikes protected margins in some sectors in that quarter.

“Even as a normalising base is expected to dampen the YoY growth in GDP in sequential terms, the performance relative to the pre-Covid level is likely to have improved markedly in Q3 FY2022. Relative to pre-Covid, growth in the GDP and the GVA is projected to have risen substantially in Q3 FY2022 to 6.6% and 7.1%, respectively, from 0.3% and 0.5%, respectively, in Q2 FY2022. Nevertheless, the recovery did not attain durability, with a slide in mobility and the contact-intensive sectors in January 2022 amidst a mildly disruptive third wave of Covid-19. Additionally, the rebound in commodity prices is likely to compress margins in the ongoing quarter, further weakening the YoY GDP and GVA growth,” Ms. Nayar said.

The nascent recovery in the contact-intensive services following the widening vaccination coverage, healthy festive season travel demand and tariff hikes undertaken by the major telcos suggest that trade, hotels, transport, communication and services related to broadcasting (THTCS) would be the only sub-sector avoiding a base-effect led dip in growth in Q3 FY2022. ICRA expects the GVA growth of THTCS to rise to ~9% in Q3 FY2022 from 8.2% in Q2 FY2022.

In contrast, the YoY expansion in the GoI’s non-interest revenue expenditure moderated to 8.4% in Q3 FY2022 from 15.0% in Q2 FY2022. Additionally, for the 24 state governments  for which data is available, non-interest revenue expenditure growth eased to 12.9% in Q3 FY2022 from 15.3% in Q2 FY2022. Based on this, ICRA projects the GVA growth of public administration defence and other services to decline to ~10.5% in Q3 FY2022 from 17.4% in Q2 FY2022.

Additionally, ICRA expects the YoY growth in industrial GVA to ease to ~4.2% in Q3 FY2022 (+2.9% in Q3 FY2021) from 6.9% in Q2 FY2022 (-3.0% in Q2 FY2021). Following the rise in global commodity prices and logistical costs, various manufacturing firms undertook price increases in Q3 FY2022, which contributed to revenue and profit growth being healthier than volume growth. In line with this, we expect manufacturing GVA growth to exceed the feeble volume rise indicated by the IIP, while witnessing a mild base-effect led moderation to ~4% in Q3 FY2022 (+1.7% in Q3 FY2021) from 5.5% in Q2 FY2022 (-1.5% in Q2 FY2021).

Similarly, the GVA of electricity, and mining and quarrying are expected to report a base-effect led fall in YoY growth in Q3 FY2022 (to 3.0% and 8.0%, respectively) relative to the previous quarter (8.9% and 15.4%, respectively).

In addition, the construction GVA growth is likely to be contained below 4.0% in Q3 FY2022 (+7.5% in Q2 FY2022), led by the YoY fall in execution of National Highways, the YoY contraction in the GoI’s capital spending (excluding the equity infusion into Air India), assessed decline in operating margins of cement companies etc. However, the steel sector has reported a sharp rise in profits despite a fall in volumes in the quarter ending December 2021.

With the late revival of monsoon rains, the total area sown under the kharif season of 2021 exceeded last year’s record area, albeit by a mild 0.2%. However, an uneven pattern of rainfall is likely to have contained the improvement in yields. ICRA forecasts the growth in the GVA of agriculture, forestry and fishing to decline to 2.5% in Q3 FY2022 (+4.5% in Q3 FY2021) from 4.5% each in Q1-Q2 FY2022.