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FY22 GDP | Mixed bag under Omicron’s shadow

If inflation starts weighing down upon consumption, observed already in consumers’ future and discretionary spending intentions, the strength of economic recovery could waver

January 10, 2022 / 12:42 PM IST
The unexpectedly high growth of the GDP deflator (8.4 percent) propelled nominal GDP growth of 17.6 percent.

The unexpectedly high growth of the GDP deflator (8.4 percent) propelled nominal GDP growth of 17.6 percent.

The first advance estimates for GDP this year, 2021-22, were released on January 7. Growth is expected at 9.2 percent, lower than the Reserve Bank of India (RBI)’s 9.5 percent forecast.

Because these estimates, primarily for budgetary purposes, represent just three quarters of economic activity, the final count will likely be lower as the Omicron-led wave will drag down growth in the last or March quarter. Relative to the pre-pandemic year, 2019-20, the economy is measured to have grown 1.26 percent above the level in real terms, implying output lost due to the pandemic will be more than fully recouped this year.

Putting this in perspective, this represents a sub-1 percent average growth performance in two years, an average 2 percent growth in three years, and a five-year GDP trend average growth of 4 percent — ill-affordable by an employment-challenged country such as ours. It is a pointer to the monumental task of recovering lost ground that lies ahead.

Reverting to FY22 growth specifics, all demand segments contributed to the comeback from last year’s contraction (-7.3 percent). A standout performance of investment and exports reflects an even distribution between domestic and external demand components. The former, viz., private consumer, business and government spending together added 11.4 percentage points to overall GDP growth, with government expenditure contributing a full percentage point, which is more than three times in the pandemic year FY21 (0.3 ppts), and double the addition in FY20 (0.5 ppts). Net exports contributed -9.7 points on the back of strong foreign demand, with imports pacing 1.8 times over growth of exports (16.5 percent).