Economic Growth: Uncertain Times
By Ashwini Agarwal
First publised on 2022-03-01 10:39:53
About the Author
The National Statistical Office (NSO) has confirmed what was clearly visible on the ground. Economic growth has slowed down considerably and the Indian economy grew at just 5.4% in Q3, down from 8.5% achieved in Q2. Consequently, the estimate for the full year growth in FY22 has been revised to 8.9%, down from 9.2% projected earlier. Even this will be hard to achieve given the sluggish private consumption and global headwinds. These figures show that the growth in Q4 will slide below 5%. The figures are also much lower than RBI estimates in December which pegged full year growth at 9.5% and Q3 and Q4 at 6.6% and 6% respectively.
Sluggishness in manufacturing and construction pulled the economy back in Q3. While manufacturing added a value of just 0.2% in Q3, construction contracted by 2.8%. The services sector was steady but labour intensive sectors were still distressed and nowhere their pre-Covid levels in real terms. Private consumption, which grew at 7% in Q3, is likely to go down to just 1.5% in Q4. Gross fixed capital formation is also sluggish and points to the fact that there is not much activity in capacity expansion or starting new projects given the subdued demand.
Although the estimate of 8.9% will still make India the fastest growing major economy in the world, it is unlikely that the figure will be achieved. Already, crude prices have hit the roof and the pump prices will see a huge increase in India in the first week of March as soon as the election ends in UP. Analysts fear that the rise will be in the region of Rs 10 per litre over a short period and that would lead to inflationary pressures. It might also lead the RBI to raise interest rates and squeeze out extra cash from the financial markets. Add to this the problems exporters will face due to the Ukraine situation, the supply chain disruption, the payments problem (with Russia out of Swift system), high prices of almost all commodities leading to increased cost of inputs and volatility in financial markets and the scenario remains bleak.
