Economists see limited impact of oil prices on India's GDP growth in Q4

Projections by economists range widely, from 2.7% to 5.5%, but most, however, agree that the economy was on a steady footing in Q4FY22

Ahead of January-March FY22 GDP print next week, projections by economists range widely, from 2.7 per cent to 5.5 per cent GDP growth. Most, however, agree that the economy was on a steady footing, with the impact of the omicron wave rather contained, and that the effect of Russia’s invasion of Ukraine was very limited as retail fuel prices were raised only after the recent round of state elections.

They also admit that predicting FY22 number is difficult because there are likely to be revisions to GDP numbers of FY21 and first three quarters of FY22.

India’s GDP could grow by around 2.7 per cent for January-March quarter, as per State Bank of India’s Chief Economic Advisor Soumya Kanti Ghosh. Ghosh expects FY22 GDP growth to be around 8.5 per cent, but warns that Q4 numbers could shift considerably based on revisions of previous quarters.

“Q4FY22 GDP numbers are due for release on 31 May and it is difficult to comprehend the numbers as a spate of customary quarterly revisions in FY22 could make it a forecaster’s nightmare. We are projecting GDP growth for FY22 at 8.5 per cent and Q4FY22 at 2.7 per cent,” Ghosh said in his latest analyst report on Thursday.

Ghosh said that Q4 projection is clouded by significant uncertainties as even an 1 per cent downward revision in Q1FY22 GDP estimates, all other things remaining unchanged, could push Q4 GDP growth to 3.8 per cent.

“We believe that downward adjustments in Q1, Q2, Q3 numbers could have a soothing impact on Q4 GDP numbers. Every Rs 10,000 crore revision adds / subtracts 7 basis points from GDP growth,” Ghosh said.

Ghosh said that early trends of Q4FY22 results from corporates in the listed space, reported better growth numbers across parameters as compared to the same period in FY21 albeit contraction in operating margins took place due to higher input cost owing to inflationary pressures.

Rahul Bajoria, India Economist with Barclays, also expects revisions to previous quarters’ GDP print. “The January-March quarter is going to be a high watermark as far as profitability is concerned. From April-June onwards, you are going to see margin compression make a bigger play due to inflation,” he said. Bajoria sees Q4 GDP growth at 3.7 per cent and FY22 at 8.8 per cent.

Bank of Baroda Chief Economist Madan Sabnavis, however, was optimistic and said there was a pent-up demand in the service sector, which did well in spite of Omicron fears. Sabnavis has projected Q4 growth at 5.5 per cent and FY22 at 9.2 per cent.

“We are looking at no change in GDP of previous three quarters. We have seen a rapid improvement in the services sector. The omicron wave did not affect services as much and we saw a major boom, especially in March,” Sabnavis said.

Aditi Nayar, Chief Economist with ICRA ltd, projects that Q4 GDP will be 3.5 per cent and GVA will be 2.7 per cent

“This is on account of the impact of higher commodity prices on margins, decline in wheat yields and the hiccups in the recovery of the contact-intensive services attributable to the third wave of Covid-19 in India,” she said, disagreeing with assessments by other economists quoted above.

Nayar said she was apprehensive that both agriculture and industry will post a sub-1 per cent GVA growth in Q4, whereas services growth will print at around 5.4 per cent

“Fuel prices increase due to the war did not get passed on till very late in Q4 as prices were increased only after the elections. The latter part of March would have been impacted to some extent. Service sector growth would be more pronounced from April onwards. There could be some weakness in agriculture and manufacturing may also be nothing to write home about in Q4, said DK Joshi, Chief Economist with Crisil.

Joshi projects FY22 GDP growth at 8.5-8.9 per cent and Q4 at 4.5 per cent.

Forecasts wary, but analysts agree impact of Omicron wave was limited
 

Weak growth seen in agriculture
 

Economists say inflationary impact on Jan-March qtr to be limited

Fuel prices were kept in check due to state elections, they say

Revisions expected in FY21, Q1, Q2, Q3FY22 GDP print