India's GDP likely to grow 9.2% in FY22: First advance estimates

According to the statistics office, agriculture is expected to grow at 3.9% in FY22 while manufacturing is likely to expand by 12.5% and trade and hotel sector are expected to grow at 11.9%

The size of the Indian economy is expected to surpass the pre-pandemic level by growing at 9.2 per cent in the fiscal year ending March 31, 2022, after recovering from a historic contraction in the preceding year, the statistics office said on Friday.

According to the first Advance Estimates released by the National Statistical Office (NSO), India’s nominal GDP may expand to Rs 232.1 trillion in FY22, from Rs 203.5 trillion in FY20. In FY21, nominal GDP had slipped to Rs 197.5 trillion because of the Covid pandemic that led to a nationwide lockdown, which hit both private consumption and output.

While the economy grew at 13.7 per cent in the first half (April-September) of FY22 (data for which were released on 30 November), the first Advance Estimates of GDP incorporated the factory output data of an additional month (October) and also accounted for some lead indicators until November and December.

With the government shifting the date of presentation of the Union Budget to February 1 from the last day of February starting FY18 Budget, the statistics department has also advanced the release of the first Advance Estimates, so that the government has an annual estimate of GDP to be incorporated in the Budget calculations even at the cost of less accuracy.

Economists, however, believe the first Advance Estimates may have downplayed the imminent impact of the third wave of the pandemic on the Indian economy for the fourth quarter of FY22. Thus, they could have over-estimated the overall growth.

“It is possible that another 20 basis points of growth may be shaved off from FY22 growth by the time the second Advance Estimates become available. The main sectors that have held back a more robust recovery are trade, transport, hotels, etc, on the output side and private final consumption expenditure (PFCE) on the demand side as their annual estimated magnitudes remain below the corresponding levels in FY20,” said D K Srivastava, chief policy advisor at EY India.

In FY22, agriculture is expected to remain the bright spot, growing at 3.9 per cent on the back of a good monsoon. Manufacturing and construction are estimated to grow in double digits, aided by a favourable base. However, growth in the services sector — which comprises more than half the economy — is expected to remain muted with estimated 8.2 per cent growth in FY22. 

Private consumption is expected to grow at 6.9 per cent in FY22, even after contracting 9.1 per cent in the preceding year, signalling the lingering impact of the pandemic on consumer sentiment.

On the other hand, government spending that is expected to grow at 7.6 per cent during the current financial year has more or less kept the economic activity ticking. This has also meant investment demand as represented by the gross fixed capital formation is likely to grow in double digits, at 15 per cent, with the government likely to push for higher capital expenditure during the March quarter owing to robust revenue collections and also aided by higher nominal GDP growth (17.6 per cent) than budgeted (14.4 per cent), which should help the Centre keep the fiscal deficit in check.

“The estimates serve as an essential input to the upcoming Budget exercise for the next fiscal year. An increase in nominal GDP at 17.6 per cent provides additional expenditure space for the government. According to the nominal GDP estimates, the budgeted fiscal deficit for FY22 works out to be 6.5 per cent of the GDP. Despite the shortfall in disinvestment proceeds and additional demand for supplementary grants, the fiscal deficit target of 6.8 per cent of GDP is likely to be achieved in FY22. The increase in nominal GDP also results in a substantial decline in the debt-to-GDP ratio, which is the focus of the FRBM (Fiscal Responsibility and Budget Management) Act,” said Govinda Rao, chief economic adviser at Brickwork Ratings.

The Omicron spread is expected to adversely impact the contact-sensitive services sector more than the manufacturing sector and this may hurt growth momentum in the March quarter. During the second wave of the pandemic earlier, while manufacturing mostly held up, services contracted in May, June, and July, according to the PMI data. During the first wave of the pandemic in 2020, a contraction in the services sector was sharper than in manufacturing; it took seven months to return to expansion territory.

The World Bank and Moody’s have projected the Indian economy to grow at 8.3 per cent and 9.3 per cent, respectively. The Reserve Bank of India (RBI) has retained its projection of 9.5 per cent annual GDP growth in FY22, although it has revised downwards its December-quarter growth estimate to 6.6 per cent from 6.8 per cent, and the March-quarter growth estimate to 6 per cent from 6.1 per cent.