Economy may have grown 5-6.3% in Q3, likely to expand by 8.5-9.1% in FY22

Economists have projected economic growth to have been in the range of 4.6-6.3 per cent during the third quarter of 2021-22. They pegged the growth in the range of 8.5-9.1 per cent during the entire 2021-22. Both these numbers--the second advance estimates for 2021-22 and the actual GDP growth for Q3 of the year--are slated to be released on February 28.

Though the first advance estimates project the economy to grow by 9.2 per cent in the current fiscal year, it would mean just 1.3 per cent growth over the pre-Covid 2019-20. The new gross domestic product (GDP) data put out last month has already pulled down economic growth to 8.8 per cent for 2021-22 in terms of the first advance estimates. This would translate to 1.6 per cent growth over pre-Covid 2019-20.

Almost all the crucial data for these numbers has come. Of this, the latest one--the index of industrial production (IIP)--was a disappointment, as the growth in IIP fell to a 10-month low of 0.4 per cent in December. With this, IIP growth stood at 3.5 per cent in the third quarter of FY22 against three per cent in the previous quarter.

It should be noted here that IIP constitutes just one fourth of industrial figures in GDP, the rest taken from corporate results nowadays.

One has to wait for the official numbers for the services sector in GDP since there are not many lead indicators. The IHS Markit purchasing managers' index (PMI) gives only a broad indicator. PMI for services stood at 57.3 during the third quarter of 2021-22 against 52.4 per cent in the second quarter. So, there seems to be some improvement in services, but PMI for services slipped to a three month low of 55.5 points in December due to the Omicron effect towards the end of the month.

India Ratings chief economist Devendra Pant pegged the full-year GDP growth at sub-nine per cent and the third quarter growth at sub-six per cent.

"The main reason is the December IIP number. Though IIP has a smaller weight in GVA (gross value added), 0.4 per cent growth, the lowest in 10 months, was not expected. We were expecting a weak number but 0.4 per cent was unexpected," he said.

In December and January, Omicron effects were there, although by the first week of February, most activities were back to normal with states lifting night curfews.  

But Omicron had affected economic activity, particularly in contact intensive services, for about a month.

"Putting all these things together, it looks like sub-nine per cent GDP growth for the entire FY22 and sub-six for the third quarter, Pant said.

Crisil chief economist D K Joshi pegged GDP growth at 8.5-8.8 per cent for FY22.

"I don't see much downside to 8.8 per cent GDP estimates for FY22. This Omicron effect was short-lived, it had an impact but the economy normalised faster. Oil prices have risen faster, but they have not caused too much of the impact," he said. However, he cautioned that oil prices would be a risk factor for economic growth in the coming financial year.

Bank of Baroda chief economist Madan Sabnavis projected economic growth at 9-9.1 per cent for FY22,  4.6 per cent for Q3 and four per cent for Q4.

"It is more of a base effect which is working here. In the third quarter, the economy has recovered but due to the base effect we're seeing the numbers coming down," he said. As can be seen from the table, the economy grew by 0.5 per cent during the third quarter and 1.6 per cent during the fourth quarter of the previous financial year. It had contracted by as much as 24.4 per cent in the first quarter and 7.4 per cent in the second quarter of the year.

Icra chief economist Aditi Nayar pegged economic growth at 8.5-9 per cent for FY22 and 6.2 per cent for the third quarter of the year.

“Even as a normalising base is expected to dampen the YoY growth in GDP in sequential terms, the performance relative to the pre-Covid level is likely to have improved markedly in Q3FY22. Relative to pre-Covid, GDP growth is projected to have risen substantially in the third quarter to 6.6 per cent from 0.3 per cent in Q2 of FY22," she said.

"Nevertheless, the recovery did not attain durability, with a slide in mobility and the contact-intensive sectors in January 2022 amid a mildly disruptive third wave of Covid-19," Nayar said.

Arun Singh, chief economist at Dun & Bradstreet, expected GDP growth to be not more than 20-50 basis points lower than 8.8 per cent for FY22. 

"The severity of the third wave was much less than the previous two waves, limiting the impact on economic activity and businesses as localised and planned restrictions led to less disruption,"he said. 

Besides, he said the sustained buoyancy in exports and government expenditure in the fourth quarter is likely to support growth, Singh added.

HDFC Bank senior economist Sakshi Gupta said she expected GDP growth for FY22 at nine per cent. She pegged Q3 growth at 6.3 per cent and Q4 at 5.5 per cent.

"The disappointing numbers for IIP in December have been in part driven by an unfavourable base effect and on a sequential basis industrial production has in fact increased. Moreover, other activity indicators also continued to hold up in December and therefore we do see a significant downside for Q3 growth," she said.

Gupta said while the first advance GDP numbers did not factor in the impact of the Omicron wave, high frequency indicators like GST collections, e-way bills, trade numbers suggest that the adverse impact on the economy has been lower than earlier anticipated.

D K Srivastava, chief policy advisor at EY India, said the economic growth might be in the range of 8.6-8.7 per cent during the current financial year. He pegged the economic growth at close to five per cent for the third quarter of the current financial year.

While the first and second quarters of the current financial year have yielded 20.4 per cent and 8.4 per cent growth, these numbers might be revised in the second advance estimates as they do not fit in 8.8 per cent economic growth for the current financial year, which has been explained above.

Annual GDP Growth

Financial year	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22*
GDP growth (%, YoY)	5.5	6.4	7.4	8,0	8.3	6.8	6.5	3.7	-6.6	9.2

* First advance estimates. When re-caculated on the basis of revised GDP numbers, it comes at 8.8

Quarterly GDP growth

Financial year/quarter	Q1	Q2	Q3	Q4
2019-20

5.4 4.6 3.3 3.0 2020-21 -24.4 -7.4 0.5 1.6

2021-22

20.1 8.4 . .

 

Source: MoSPI

Projections of GDP growth in % YoY

Agency	FY22	Q3FY22
Crisil	8.5-8.8	-
Icra	8.5-8.9	6.2
EY India	8.6-8.7	About 5
Bank of Baroda	9.0-9.1	4.6
HDFC Bank	9,0	6.3
India Ratings	Sub-9	Sub six

Source: Respective agencies