Indian economy loses steam as Ukraine war takes toll, GDP growth slows to 4.1% in Q4

The economy had contracted by 6.6 per cent in the 2020-21 financial year

India’s economy grew at its slowest pace in the fourth and the last quarter (January-March) of 2021-22, hit by a decline in the manufacturing sector due to the Ukraine war, rise in commodity prices to their highest level in recent times and a slow growth in services due to a fresh Omicron wave early this year.

For the full year (2021-22), however, the economy expanded at 8.7% and remained the fastest growing among the large economies compared to a contraction of 6.6% in the pandemic year of 2020-21.

The economy expanded 20.3% in the first quarter (April-June), 8.4% in the second quarter (July-September) and 5.4% in the October-December quarter of 2021-22.

“While the readings have broadly come in line with expectations, the outlook remains clouded with uncertainties, especially with escalating crude oil prices. Further, weak labour markets, limited ability on additional fiscal spends, reduced corporate margins due to rising input prices and weaker global demand remain a concern,” Upasna Bhardwaj, economist at Kotak Mahindra Bank, said.

The manufacturing sector contracted -0.2% in the January-March quarter compared to a growth of 0.3% in the previous quarter. Growth in mining and contact-intensive sectors like trade, hotel, transport and communication too slowed in the quarter under review due to the Omicron wave posing fresh restrictions.

The government’s chief economic adviser V Anantha Nageswaran said, “A robust response is expected from the private sector in the second half when global risks dissipate. Currently, global monetary tightening and risk of commodity prices going up pose challenges. Managing the troika of growth, inflation, fiscal balance is a challenge for all economies.”

He, however, said that stagflationary risks are quite low for India. Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output.

Stagflation is the phase when both inflation and unemployment rates are high with moderation in GDP growth.

During Q4, private consumption expenditure grew by 7.9 per cent, reflecting some impact of pent up demand. There was also a revival in contact-intensive services in the last quarter which has helped the GDP print reach respectable levels.

The GDP had grown by 2.5 per cent in the January-March quarter in the previous year.

Separately, the eight core infrastructure industries grew by 8.5 per year-on-year in April 2022, a six-month high. Except crude oil and steel, all other infrastructure industries recorded positive growth during the month.

Crude oil output has been weak for quite some time and has been in contraction now for 53 months. This means the country's dependence on global crude oil will be even higher, which is on the boil leading to imported inflation and its associated consequences for the economy.

Rumki Majumdar, Economist, Deloitte India, said the difference between the real and nominal GDP suggests that inflation has been a persistent problem, and the economy has been fighting the challenge of rising prices for a long time now.

"Government's intervention in the form of duty cuts on imports, subsidies on fertilisers and cooking gas, duty cuts on fuels to protect consumers and businesses from high inflation is likely to impact the fiscal deficit in the coming quarters."

According to the data released by the National Statistical Office (NSO), India's real GDP grew to Rs 147.36 lakh crore from Rs 135.58 lakh crore in 2020-21.

Gross value added (GVA) growth during the fiscal ending March 2022 was at 8.1 per cent as against a contraction of 4.8 per cent in the preceding year.

The GVA growth in the manufacturing sector accelerated to 9.9 per cent during the year as against a contraction of 0.6 per cent earlier.

GVA growth in both mining and construction was 11.5 per cent. These two large segments of the economy had contracted in the Covid-hit 2020-21.

However, agriculture sector growth decelerated to 3 per cent from 3.3 per cent in FY21.

Electricity, gas, water supply and other utility services segment grew by 7.5 per cent during 2021-22. The segment had contracted by 3.6 per cent in the previous fiscal.

GVA growth in services sector -- trade, hotel, transport, communication and services related to broadcasting -- was 11.1 per cent during 2021-22 as against a contraction of 20.2 per cent in the previous year.

Financial, real estate and professional services grew by 4.2 per cent in the year over 2.2 per cent earlier.

Public administration, defence and other services posted 12.6 per cent growth against (-)5.5 per cent in 2020-21.

"Real GDP at Constant (2011-12) Prices in the year 2021-22 is estimated to attain a level of Rs 147.36 lakh crore, as against the First Revised Estimate of Rs 135.58 lakh crore for the year 2020-21.

"The growth in GDP during 2021-22 is estimated at 8.7 percent as compared to a contraction of 6.6 percent in 2020-21," the NSO said.

Also, nominal GDP or GDP at Current Prices in 2021-22 was estimated at Rs 236.65 lakh crore, as against Rs 198.01 lakh crore in 2020-21, showing a growth of 19.5 per cent.

As per the NSO data, per capita income (based on net national income) during 2021-22 was Rs 1.5 lakh per annum at current prices, up from 1,26,855 in 2020-21, showing a growth of 18.3 per cent.

However, at constant prices, per capita annual income works out to be Rs 91,481, up 7.5 per cent from Rs 85,110 in FY21.

Gross fixed capital formation was estimated at Rs 47.84 lakh crore in 2021-22, up from Rs 41.31 lakh crore in the preceding year.

With PTI inputs