India’s GDP growth: The devil is in the details | Mint

India’s GDP growth: The devil is in the details

Photo: Mint (Mint)
Photo: Mint (Mint)


  • India’s FY22 GDP growth at 8.7%, looks pale when compared with pre-pandemic levels
  • Private consumption, which forms more than half of the Indian GDP, was a key pain point

Real gross domestic product (GDP) growth for the year ended 31 March came in at 8.7%. GDP is a measure of the size of an economy during a particular period. After adjusting for inflation, a growth of 8.7% sounds pretty good until we consider that GDP had contracted by 6.6% in the previous year.

Hence, to make a fair comparison, we need to compare FY22 GDP with that of the pre-pandemic year of FY20. The GDP in FY22 was at 147.4 trillion, which is just 1.5% more than the 145.2 trillion achieved in FY20.

High retail inflation amid ongoing Russia-Ukraine war may dampen India’s FY23 GDP growth
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High retail inflation amid ongoing Russia-Ukraine war may dampen India’s FY23 GDP growth

In that sense, we have barely managed to come out of the negative economic impact of the covid-pandemic. This can be clearly seen in the private consumption expenditure, which accounts for more than half of India’s GDP. Private consumption is the money you and I spend on buying things.

Private consumption expenditure in FY22 stood at 83.8 trillion, which was barely 1.4% higher than the 82.60 trillion recorded in FY20.

Even the 1.4% growth is on account of the increase in population over the past two years. Once we adjust for that, the per capita private consumption expenditure has fallen by 0.6% to 61,215 over the two-year period.

Clearly, the Indian economy is going to take time to come out of the negative economic impact of the pandemic. Also, the GDP data for FY22 barely factors in the negative effects of Russia’s invasion of Ukraine, which started on 24 February. This attack has sent global commodity prices soaring higher. Russia is a big exporter of commodities like crude oil, natural gas, fertilizers, sunflower oil and coal. India imports a huge amount of these commodities.

The negative impact of this can be seen in the GDP growth of 4.1% in the March quarter. The interesting thing is that the GDP growth has slowed steadily through FY22. In the three months ended 30 June 2021, growth soared 20.1%. It slowed to 8.4% in the September quarter and then cooled further to 5.4% in the three months ended 31 December.

A major reason for this is inflation, which hit private consumption. In fact, private consumption in the quarter ended 31 March 2022 was just 1.7% higher than a year earlier. This was when retail inflation between January and March averaged 6.3%. It was at a much higher 7.8% in April, only suggesting that things are unlikely to improve on the growth front.

In fact, retail inflation has been in single digits despite wholesale inflation being in double digits since April 2021. The difference between the two inflation rates has narrowed over the months. It peaked at around 10% in November and narrowed to 7.3% in March. This implies that more businesses are now passing on the increase in raw material expenses and the cost of doing business to consumers by raising the prices of products and services.

This inflation is already hitting consumers badly. As Hindustan Unilever, one of India’s biggest household goods maker, recently said: “Due to unprecedented inflation, FMCG market… has significantly slowed down, and volumes are declining in high single-digit. The impact is more pronounced in rural [markets]... Consumers are tightening volumes, and essentials are being prioritized over discretionary categories." Volumes declining refers to consumers not buying as many units of different products as they did in the past.

This implies that inflation will continue to negatively impact consumption and drive down economic growth in the current financial year, at least as long as the war in Ukraine continues. Therefore, it won’t be a surprise if economic growth in the current fiscal slows significantly.

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