Explained: Why FY22 GDP is likely to be lower than estimates

Why a lower GDP estimate now?

In the first revised estimates for FY21 released by the National Statistical Office (NSO) on January 31, the GDP growth rate for the previous fiscal was revised upwards showing a contraction of 6.6 per cent as against minus 7.3 per cent earlier. This had come on the back of a downward revision of the GDP estimate for FY19 to 3.7 per cent from the earlier estimate of 4 per cent. This creates a less favourable base effect for FY22, so the GDP estimate is now expected to be lower than the 9.2 per cent estimated earlier in the first advance estimates released on January 7.

Economists said the impact of the third wave of Covid on economic momentum, especially in contact-intensive sectors, is seen lowering growth in the second half of the current fiscal (H2FY22). Also, production constraints caused by a semiconductor shortage in electronic and automobile industries, along with supply shortages in coal and power outages caused a slowdown in the manufacturing sector, they said. Rising international crude oil and input prices have also added to the problem.

What are the estimates?

Economic recovery was well underway after the second wave of the pandemic, and there was a steady improvement in the revival of both industry and services. The highly transmissible Omicron variant disrupted the revival process and restrictions to contain the virus spread dampened recovery in contact-intensive sectors, posing additional risks to the services sector growth momentum, Brickwork Ratings said. “Although the impact of the third wave on economic activities may be limited compared to the first and second waves, there is some loss of momentum to revival. Persistent supply-side bottlenecks, steadily rising international crude oil prices and increasing raw material costs have added to the woes. Hence, the growth rates in Q3 and Q4 may be lower than projected earlier. After having witnessed 20.1% and 8.4% growth in Q1 and Q2, respectively, we expect the Q3 GDP may come in lower at 5.8%,” it said.

For full fiscal, it estimates GDP growth rate to be 8.3 per cent as against earlier estimate of 8.5-9 per cent. India Ratings expected FY22 GDP to be 8.6 per cent. “The major reason for the likely downward revision in GDP growth is the upward revision of FY21 GDP to INR135.6 trillion in the first revised estimate (1st RE) of national income for FY21, released on 31 January 2022,” it said.

The Reserve Bank of India had earlier forecast growth rates of 6.6 per cent for October-December and 6.0 per cent for January-March quarters in its December policy meet. It did not detail GDP estimates for these quarters in the February policy review meeting.

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