SBI Ecowrap - GDP expected to grow by 9.2% in FY22

10 Jan 2022 , 10:59 AM

The 1st advance estimate (AE) of GDP for FY22 indicates GDP growth at 9.2% and GVA growth estimate is 8.6%. Nominal GDP growth is a whopping at 17.6%. Notably, this is the second highest nominal growth achieved with 19.9% nominal growth registered in 2010-11 and 17.1% growth in 2006-07. The data indicates that the overall GDP growth is 1% above of the pre-pandemic level (FY20). Almost all sectors except ‘trade, hotels, transport, communication & services related to broadcasting’ (which are still 8% below the pre-pandemic level) reached the pre-pandemic level (on constant prices).

On the expenditure side, Private final consumption expenditure is still 3% below the pre-pandemic level. Taking into account the revised GDP figures of today, even if we consider the additional spending announced by the Government in early Dec’21 fiscal deficit of the Government still comes at Rs 15.88 lakh crore or 6.8% of the GDP. For FY23, the fiscal consolidation should remain limited to 30-40 bps from the current fiscal.

Cases have been rising significantly in India as well as across the globe. However, studies so far reveal that the current Omicron variant is less severe than the Delta variant. Data also substantiates this fact. While number of new cases increased from 1.3 crore in Oct’21 to almost double to 2.5 crore in Dec’21 the number of deaths remained constant (just ~2200 more deaths occurred in Dec as compared to Oct).

Even SBI business activity index is at its all time high of 114.6 for the week ended 3 Jan’21, indicating that economic activity is not getting affected by the sudden bout of infections. The index has been above the pre-Covid level since mid-Jul’21 barring some minor exceptions.

Going forward, we believe even if the rising infections could impact mobility, yet economic activity is not expected to get affected much.

We believe that NSO’s estimate is on the conservative side, as the calculated GDP growth for H2 FY22 for construction comes at —0.9% and for Financing, insurance, real estate & bus. Services is at a mere 2.0% for H2 FY22.

We still believe that real GDP will grow at around 9.5% in FY22.

Meanwhile, this estimate however has a shelf-life of only two months and is only used as an input for budget arithmetic. The NSO will release the first revised estimate of FY19, FY20 and FY21 on 31 Jan’21 and we believe that for FY22 the figures would be revised again in Feb’21 and May’21.

The author of this article is Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com