New Delhi: India’s GDP growth slowed to 5.4 per cent in October-December 2021 before the full fury of the third wave of coronavirus infections struck the country and the economy faced fresh geopolitical risks, but it still remains the fastest growing in the world.
Asia’s third-largest economy is projected to grow 8.9 per cent in the fiscal year ending March 31, slower than previously anticipated 9.2 per cent, according to the data released by the Statistics Ministry on Monday.
Gross Domestic Product (GDP) grew 5.4 per cent in October-December as compared to 0.7 per cent in the year-ago period and 8.5 per cent in the preceding quarter.
The slowing momentum follows curbs on economic activity that came in towards the end of the quarter to check the spread of the Omicron variant of the virus.
The weaker pace of growth came in ahead of the heightened geopolitical risks to the economy from higher prices of commodities and energy after Russia invaded Ukraine.
GDP is projected to grow 8.9 per cent for 2021-22 compared with 6.6 per cent contraction last fiscal.
The third quarter (October-December) numbers were impacted by a slower than expected growth in agriculture (2.6 per cent), muted manufacturing (0.2 per cent) and contraction in construction (-2.8 per cent) despite activity picking up.
This was before the Omicron variant of the coronavirus peaked earlier this year, forcing many states to impose curbs. The third quarter was also the quarter of the festive season, so high consumption normally pushes up the demand. The slowdown in the growth rate reflects the absence of private spending.
Though the third COVID wave has now subsided, the economy faces headwinds arising out of the geopolitical situation caused by the Russia Ukraine conflict.
Oil prices climbed to over a seven-year high amid the Russia-Ukraine conflict.
Last week, Finance Minister Nirmala Sitharaman flagged that the pandemic recovery will be challenged by geopolitical risks.
A rise in inflation and energy prices will likely put pressure and pull down the full-year growth rate.
“The quarterly GDP growth numbers of FY22 is heavily influenced by the base effect, yet it indicates that the recovery in 3QFY22 cannot be yet called a robust recovery,” Sunil Kumar Sinha, Principal Economist at India Ratings and Research, said.
“Several indicators such as consumption of steel, sale of commercial/passenger vehicle, cargo handled at seaports are either showing negative or low growth despite the extraordinary low base of FY21. The situation is unlikely to be very different even in 4QFY22 due to 3rd wave of COVID,” he noted.
India Ratings expected the fourth quarter (January-March 2022) growth to come in at 5.1 per cent.
For full fiscal, the second advanced estimate by the ministry puts agriculture growth at 3.3 per cent, unchanged from the previous year. The industrial sector is seen growing by 10.4 per cent in FY22 while services — the largest component of the economy — is seen expanding 8.8 per cent.
Rumki Majumdar, Economist, Deloitte India, said: “supply constraints and subdued demand have weighed on the growth rebound in Q3. New uncertainties because of geopolitical conflicts could impact the growth outlook.”
“The biggest worry would be inflation because of skyrocketing oil prices. This could undermine the stability of growth. Rising inflation and falling stock market indices may weigh on consumer sentiments and their purchasing power,” Majumdar said, adding a possible policy rate hike by RBI could impact the credit growth cycle, which had been improving lately.
GDP at constant (2011-12) prices in Q3 of 2021-22 is estimated at Rs 38.22 lakh crore as against Rs 36.26 lakh crore in Q3 of 2020-21, an official statement said.
According to the statement, real GDP at constant (2011-12) prices in 2021-22 is estimated to attain a level of Rs 147.72 lakh crore as against the first revised estimate of GDP for the year 2020-21 of Rs 135.58 lakh crore, released on January 31, 2022.
China recorded a growth of 4 per cent in the October-December period of 2021.
Separately, the growth in the core sector marginally eased to 3.7 per cent year-on-year in January 2022 as compared to the revised print of 4 per cent in December 2021.
While the core sector has been largely resilient to the third wave of the pandemic witnessed in the month of January, the weaker momentum in output growth can be attributed to the uncertainty created by the spread of Omicron.
“While we continue to believe that government’s thrust on infrastructure segment and the progress in vaccinations will strengthen core sector activity over the next few quarters, higher commodity prices and fresh supply chain bottlenecks in the context of the emerging geo-political risks through the Russia-Ukraine conflict will remain a point of concern,” Suman Chowdhury, Chief Analytical Officer at Acuite Ratings & Research, said.