GDP growth slows to 5.4% in Oct-Dec

  • Russia’s attack on Ukraine poses fresh risks to economic recovery
  • The financial and real estate sectors saw growth decelerate to 4.6% in the third quarter from 6.2% in the preceding three months

Dilasha Seth, Ravi Dutta Mishra
Updated1 Mar 2022
Manufacturing activity grew by a marginal 0.2% in the December quarter compared to 5.6% in the preceding three months.
Manufacturing activity grew by a marginal 0.2% in the December quarter compared to 5.6% in the preceding three months.(Photo: Mint)

The Indian economy grew at a slower-than-expected pace of 5.4% in the December quarter, indicating the recovery remains fragile even as Russia’s attack on Ukraine poses fresh risks to a nation struggling with high inflation and pandemic-related disruptions.

However, the economy emerged stronger than the pre-covid period, growing 6.1% over the third quarter of fiscal 2019-20.

Slowing momentum

Slowing investment activity and weakness in manufacturing and construction sectors contributed to the slower-than-expected growth in the three months to 31 December.

The economy is now estimated to clock an 8.9% growth for the year to 31 March, according to the National Statistical Office (NSO), a marginal upward revision from 8.8% estimated as per the revised estimates released last month. This implies that growth will decelerate to 4.8% in the March quarter of the current fiscal amid liquidity tightening by major global economies and rising fuel and commodity prices.

Growth in the eight infrastructure sectors also slowed to 3.7% in January from 4.1% in the previous month, data released by the commerce ministry showed on Monday. The eight core industries hold 40.27% weight in the Index of Industrial Production.

Meanwhile, the Centre’s fiscal deficit in the first 10 months of the fiscal year stood at nearly 59% of the full-year estimate, indicating that the government may be on course to meet the revised fiscal deficit target of 6.9% of GDP for the year, data released by the Controller General of Accounts showed.

The fiscal deficit target for FY22 was widened to 6.9% from the 6.8% estimated earlier.

The gross domestic product grew 8.5% in the fiscal second quarter, data by the NSO showed on Monday. However, in the nine months to December, the economy is still 0.2% below the corresponding pre-covid period in 2019-20.

“New uncertainties because of geopolitical conflicts could impact the growth outlook. The biggest worry would be inflation because of skyrocketing oil prices. This could undermine the stability of growth,” said Rumki Majumdar, an economist at Deloitte India.

Rising inflation and a volatile stock market may weigh on consumer sentiment. A possible interest rate hike by the Reserve Bank of India could also impact credit growth, which was improving lately, Majumdar added.

GDP grew by 10.1% in the April-December period over the corresponding period last year.

Gross fixed capital formation, a proxy for private investment, grew 2% during the December quarter from 14.6% in the preceding three months. However, its share in GDP shrank to the lowest in five quarters to 30.1% from 33.3% in the preceding quarter.

The private final consumption expenditure, signifying demand in the economy, grew by 7% in the December quarter compared to 10.24% in the preceding three months. Its share in overall GDP spiked to 60.7% from 56.5%.

“The most encouraging piece of the disaggregated GDP data is the 7% expansion in private consumption in Q3 FY22, which coupled with the mild rise in current consumer confidence in January despite the onset of the third wave, bodes well for the outlook for demand and capacity utilization. However, the feeble 2% rise in gross fixed capital formation was the biggest disappointment, reiterating the tentativeness of the investment cycle,” said Aditi Nayar, chief economist, ICRA.

Manufacturing activity expanded by a marginal 0.2% in the December quarter compared to 5.6% in the preceding three months.

“A disappointment has been the low growth in manufacturing in Q3 of just 0.2% even though corporates have established healthy growth in profit. It means that the unorganized sector has still not gotten up,” said Madan Sabnavis, chief economist, Bank of Baroda.

The construction sector shrank 2.8% in the third quarter versus an 8.2% growth in the preceding three months.

Agriculture growth slowed to 2.6% in the third quarter compared to a 3.7% expansion in Q2.

Among services, the government sector posted double-digit growth for the second straight quarter at 16.8% in the quarter ended December, compared to 19.5% in Q2. Trade, transport, and hotels sector saw 6.1% growth compared to 9.5% growth in the previous quarter. The financial and real estate sectors saw growth decelerate to 4.6% in the third quarter from 6.2% in the preceding three months.

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