Business News/ Economy / GDP expands 4.1% in March quarter

NEW DELHI : The Indian economy expanded at the slowest quarterly pace in a year as the impact of the Russian invasion of Ukraine rippled across the globe, sending energy and raw material prices soaring and weakening demand.

The economy grew 4.1% in the quarter ended 31 March, the slowest pace in a year, official data showed. The third wave of the pandemic in January also impacted business activity.

Losing momentum
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Losing momentum

For the full year, the economy expanded by 8.7%, slower than the government’s second advance estimate of 8.9%, according to data released by the national statistical office (NSO) on Tuesday. The pace of growth was also partly due to a low base of the previous year when the economy contracted 6.6% because of the pandemic. Nevertheless, India emerged as the fastest-growing major economy in the world in FY22. Still, the GDP was just 1.37% higher than the pre-covid level of FY20.

Economic activity was poised to rebound after the lifting of pandemic restrictions when the Russian invasion of Ukraine sent energy and commodity prices soaring, further strained global supply chains and hit business confidence. Surging inflation has since forced the central bank to raise interest rates by 40 basis points in May. Further increases in interest rates to tame inflation may dampen demand and slow economic activity.

“The deceleration in GDP growth in Q4 is on expected lines. However, factors like the Russia-Ukraine war, high global commodity prices, pace of monetary tightening by central banks globally, and the overall global economic slowdown will have a bearing on India’s economy," said Rajani Sinha, chief economist, Care Ratings. While consumer spending could see an improvement as the employment situation in the economy improves, high food and fuel inflation will be a dampener for discretionary spending, Sinha said, adding that Care expects GDP to grow by 7-7.5% in FY23.

Meanwhile, the eight infrastructure sectors of the economy grew at the fastest pace in six months in April, led by sharp growth in coal, refinery products, fertilizers, electricity, and cement output, despite the year-ago high base, indicating brightened prospects for the manufacturing sector.

The eight sectors—coal, crude, natural gas, refinery products, fertilizers, cement, steel, and electricity—expanded by 8.4% in April from 4.9% in March, data released by the ministry of commerce and industry showed on Tuesday.

“Some of the numbers are impressive, like coal, which grew by 28.8% and power by 10.7%. This is difficult to reconcile with the power crisis that was there in April, with a shortage of coal and power being reported. Evidently, this was not the case. IIP growth too can be expected to be in the higher single-digit range of 6-8% based on these growth rates for the core sector," said Madan Sabnavis, chief economist, Bank of Baroda.

Even as the robust core sector data offer hope, the gap between the real and nominal GDP widened by more than 10 percentage points in the previous fiscal. The nominal GDP stood at 19.5% in FY22.

“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," said Rumki Majumdar, an economist at Deloitte India.

Private final consumption expenditure, signifying demand in the economy, slowed significantly to 1.76% in the March quarter compared to 7.4% in the preceding three months. As a result, its share in overall GDP shrank to 55.5% from 61%.

Gross fixed capital formation, a proxy for private investment, grew by 5.14% during the fourth quarter compared to 2.11% in the preceding three months. Its share in GDP recovered to 33.6% in the March quarter after falling to a five-quarter low of 30.1% in the December quarter.

Manufacturing activity shrunk by 0.2% in the March quarter compared to a 0.3% growth in the preceding quarter.

“The slippage in manufacturing GVA to a contraction of 0.2% in Q4 from the marginal growth of 0.3% in the previous quarter reflects the impact of higher commodity prices and margin compression," said Aditi Nayar, chief economist, ICRA Ltd.

Farm sector growth recovered to 4.1% compared to 2.6% in the third quarter. “The GVA growth of agriculture, forestry and fishing was surprisingly strong in light of the bleak wheat harvest portrayed by the third advance estimate of crop production," said Nayar.

Dilasha Seth
" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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Updated: 01 Jun 2022, 12:31 AM IST
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