India’s economy for the October-December quarter 2021 expanded by 5.4 per cent, which was slower than the growth rate in the previous two quarters as manufacturing, the mainstay of the economy, posted a sharp deceleration and construction, a major sector, declined.
The services sector, which was the worst-hit by the Covid pandemic, showed strong growth, private consumption, which comprises 60 per cent of the GDP, too grew by a good 7 per cent, which showed demand in the Covid-hit economy may be coming back.
While manufacturing grew only by 0.2 per cent compared to a growth of 8.4 per cent in the same quarter last year, the construction sector declined 2.8 per cent as against a growth of 6.6 per cent in the corresponding period last year. Agriculture growth too slowed to 2.6 per cent in the October-December period compared to 4.1 per cent a year ago.
Going forward, economists cautioned of a downside risk to India's GDP if the geopolitical tensions continued and crude oil prices rose sharply.
"Manufacturing and construction sectors were the major drag on growth, while the services segment continued to post recovery. For FY23, we expect GDP growth at 8.2 per cent, with downside risks emerging to our forecasts due to rising geopolitical tensions," said Sakshi Gupta, senior economist at HDFC Bank.
Analysts also predicted a deeper impact of the Omicron wave on the January-March economic growth and rising inflation could threaten a sustained recovery in consumption.
"The slowdown in the manufacturing sector can be attributed to supply chain disruptions and semi-conductor shortages. The impact of the Omicron wave will be seen in the Q4 GDP data. However, broadly with Covid concerns subsiding, economic indicators are expected to improve.... But, the scope of rising inflation continues to threaten sustainable consumption recovery. Further headwinds to India’s domestic growth are likely to arise from the sharp rise in oil prices causing expansion in import bills and the threat of sharp rupee depreciation. The Russia-Ukraine standoff also poses some risk to global growth, with repercussion on India’s exports,” Rajani Sinha, Chief Economist at Knight Frank India, said.
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