Opinion

Latest GDP estimates indicate consumption and investment remain subdued

Broadly in line with expectations, the Indian economy grew by 4.1 per cent in the fourth quarter (January-March) of the last financial year (2021-22), as per the latest data released by the National Statistical Office. For the full year, the economy is now estimated to have grown by 8.7 per cent, marginally lower than the earlier estimate of 8.9 per cent, released at the end of February. However, the latest estimates imply that at the end of 2021-22, the economy is only 1.5 per cent higher than its pre-pandemic level, as both private consumption and investment — the two major drivers of growth — continue to be subdued.

Gross value added by the entire economy rose by 3.9 per cent in the fourth quarter. This appears to have been propped up by agriculture and public administration, defense and other services. Excluding these, core value added grew at an even slower pace of 3.2 per cent. The disaggregated data also points to a mixed performance across sectors. Agricultural growth has been estimated at 4.1 per cent in the fourth quarter. However, this is at odds with estimates of wheat and most rabi crops whose yields were hit by excess rains during December-January and the post mid-March heat wave. Within industry, manufacturing has actually contracted by 0.2 per cent in the quarter just ended. In fact, the sector’s performance has dipped sequentially — it has barely registered a rise in the second half of 2021-22. This is, perhaps, an outcome of margins coming under pressure. Within services too, performance has been varied. While trade, hotels, transport, and communication services have slowed down to 5.3 per cent in the fourth quarter, down from 6.3 per cent in the previous quarter, the financial, real estate and professional services sector has maintained its trajectory — contact-intensive services did get affected by the third wave of the pandemic in the initial few weeks of the quarter. Worryingly, private consumption has continued to remain muted, growing by just under 2 per cent in the fourth quarter. And while gross fixed capital formation, which connotes investment activity in the economy, saw a marginal uptick in the quarter just ended, it has grown by under 4 per cent in the second half of last year.

Leading economic indicators suggest the momentum of economic activity in the weeks and months thereafter has remained healthy. Growth is also likely to be aided by a low base effect. However, the recovery is neither broad-based nor fully entrenched. Moreover, the combination of slower global growth and higher commodity prices, especially crude oil, will act as headwinds.

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