India’s GDP Growth Moderates To 5.4% In Q3FY22, Indicating A Robust Recovery Is Still Not In Sight

India's gross domestic product (GDP) growth in the October-December quarter moderated to 5.4 per cent compared to an 8.4 per cent growth in the previous quarter of 2021-22, government data showed. GDP growth had expanded by 0.7 per cent in the corresponding period of 2020-21, according to the data released by the National Statistical Office (NSO). The second advance estimates of national income 2021-22 pegs GDP growth for the year at 8.9 per cent as compared to a contraction of 6.6 per cent in 2020-21.

“The quarterly GDP growth numbers of FY22 is heavily influenced by the base effect, yet it indicates that the recovery in Q3FY22 can yet not be called a robust recovery. Several indicators used in the estimation of Q3FY22 GDP such as consumption of steel, sale of commercial/passenger vehicle, cargo handled at sea ports are either showing negative or low growth despite the extraordinary low base of FY21,” India Ratings & Research (Ind-Ra) said.

The data showed a marginal revision of the government’s GDP estimates for the two preceding quarters. For the April-June quarter (Q1), GDP grew sharply by 20.3 per cent compared to 20.1 per cent reported earlier while in the July-September quarter (Q2), it grew 8.5 per cent as compared to the 8.4 per cent growth estimation made previously. 

The government had estimated the GDP in FY22 to grow by 9.2 per cent in the first advance estimates. The GDP growth for the third quarter was expected to be around 6 per cent. This projection had not taken into account the impact on the economy due to the new Covid-19 variants due to loss in economic activities. 

“The NSO's implicit GDP expansion of 4.8 per cent for Q4 FY2022 looks rather optimistic, given the fallout of the third wave on contact-intensive services, and the expected adverse impact of the spike in commodity prices fuelled by geopolitical tensions on margins, compounded by an even larger base effect for the ongoing quarter. As a result, we now expect the FY2022 GDP growth to print closer to 8.5 per cent,” Aditi Nayar, chief economist ICRA, said.

According to Ind-Ra, the situation is unlikely to be very different even in the fourth quarter of FY22 due to the third wave of Covid-19 and it expects fourth-quarter growth to come in at 5.1 per cent. 

Agriculture, forestry, and fishing in Q3FY2021-22 grew at 2.6 per cent, moderating from a growth of 3.7 per cent in the second quarter. Mining and quarrying grew 8.8 per cent in Q3 compared to a growth of 14.2 per cent in Q2 while manufacturing grew 0.2 per cent compared to a growth of 5.6 per cent in the previous quarter. Construction contracted 2.8 per cent in the third quarter compared to a growth of 8.2 per cent in the preceding quarter. Growth in trade, hotels, transport, communication and services related to broadcasting moderated to 6.1 per cent in the third quarter compared to 9.5 per cent in the quarter before. 

Private final consumption expenditure grew 60.7 per cent in the third quarter of FY2021-22 compared to 56.5 per cent in the preceding quarter. Government final consumption grew 9.3 per cent in the third quarter compared to 9.8 per cent in the previous quarter. Gross fixed capital grew 30.1 per cent compared to 33.3 per cent in the second quarter. 

“The most encouraging piece of the disaggregated GDP data is the 7 per cent expansion in private consumption in Q3 FY2022, which coupled with the mild rise in current consumer confidence in January 2022 despite the onset of the third wave, bodes well for the outlook for demand and capacity utilisation. However, the feeble 2 per cent YoY rise in gross fixed capital formation was the biggest disappointment, reiterating the tentativeness of the investment cycle,” Nayar said.