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Consumption, investment concerns remain as Q3 GDP growth surprises on downside

While a decline in GDP growth rate was expected in the third quarter of FY22, the number announced by the statistics ministry on February 28 has surprised on the downside.

February 28, 2022 / 08:46 PM IST
Representative Image

Representative Image

India's Gross Domestic Product (GDP) grew 5.4 percent in October-December 2021 as against 8.5 percent in July-September 2021.

While a decline in growth was expected on account of the favourable base effect dissipating, the extent of the slowdown is larger than anticipated.

A Moneycontrol survey last week had shown economists expected GDP growth to fall to 6.2 percent. However, the growth impulses have clearly not been as strong as expected.

"Overall, Q3 GDP growth was lower than consensus, driven by weak consumption," noted Nikhil Gupta, chief economist at Motilal Oswal Financial Services.

Consumption has indeed been weak. Data released on February 28 by the Ministry of Statistics and Programme Implementation showed private final consumption expenditure grew 7.0 percent year-on-year in October-December 2021, down from 10.2 percent in July-September 2021.


A 7.0 percent rise in private private consumption is not the end of the world. However, it is not impressive. And things are likely to get worse.

As per the government's second advance estimate, the GDP will grow 8.9 percent in FY22, 30 basis points lower than what the first advance estimate had said. However, estimate for the full-year and for the first three quarters of FY22 imply a growth rate of 4.8 percent for January-March 2022.

Moreover, private final consumption expenditure is seen rising by a mere 1.5 percent year-on-year in the current quarter. And this is before the latest sources of stress are taken into consideration as the advance estimate is arrived at by extrapolating the information available for the first nine months of the financial year.

"The economic recovery might see a minor bump down in Q4 FY22 led by mild omicron wave, while the current geopolitical escalation may lead to potential global energy trade and price disruptions and weigh on growth," said Madhavi Arora, lead economist at Emkay Global Financial Services.

While expectations of subdued consumption growth may ensure the Reserve Bank of India (RBI) sees demand pressures remaining weak - thereby allowing monetary policy to remain accommodative - the performance of investments does not bode well for the supply side.

As per the latest GDP data, gross fixed capital formation - a proxy for investments - edged up by 2.0 percent in October-December 2021. This came on the back of a 14.6 percent increase in July-September 2021.

Overall, gross fixed capital formation is seen growing 14.6 percent in FY22. However, much of the heavy lifting has already been done, with the second advance estimate implying an year-on-year increase of only 1.3 percent in gross fixed capital formation in January-March 2022.

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Siddharth Upasani
first published: Feb 28, 2022 08:46 pm
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