Household consumption up; below pre-Covid level: FY22 GDP estimates

According to the Second Advance 2021-22 (FY22) Gross Domestic Product (GDP) Estimates released by the National Statistical Office (NSO) on Monday, household consumption is expected to contribute slightly more to GDP in nominal terms, compared with the First Advance Estimates. However, it will still be below the pre-pandemic levels of 2019-20 (FY20).

Private final consumption expenditure (PFCE) for the current fiscal year is projected to be Rs 140 trillion, or 59.3 percent of GDP. This is a slight improvement over 57.5 per cent projected in the First Advance Estimates. In absolute terms, the FY22 PFCE projections in nominal terms are higher than pre-pandemic levels. But in terms of percentage share in GDP, it is lower than 61 per cent in FY20.

Nominal GDP is being used as the marker here as inflation plays a role in household consumption. PFCE is a proxy for household consumption. It is the most crucial indicator since the Covid-19 pandemic hit incomes due to job losses, paycuts, and increased medical expenditure.

The NSO also released the GDP data for October-December (Q3) of FY22. It showed PFCE at Rs 39.67 trillion, steadily higher than the first quarter (Q1) and the second quarter (Q2). As percentage share of nominal GDP, PFCE in Q3 was 62.9 per cent, compared with 59.3 percent in Q2 and 55.2 per cent in Q1.

“The most encouraging piece of the disaggregated GDP data is the expansion in private consumption in Q3, which, coupled with the mild rise in current consumer confidence in January 2022 despite the onset of the third wave, bodes well for the outlook for demand and capacity utilisation. However, the feeble 2 per cent year-on-year (YoY) rise in gross fixed capital formation (GFCF) was the biggest disappointment, reiterating the tentativeness of the investment cycle,” said Aditi Nayar, chief economist, ICRA.

Nominal GFCF, a proxy for investment, came in at Rs 16.44 trillion, slightly lower than Q2. As percentage share of GDP, it was 26 per cent, compared with 29.3 per cent in Q2 and 28 per cent in Q1.

Government final consumption expenditure (GFCE) was Rs 6.05 trillion in nominal terms in Q3. As percentage share, it was 9.6 per cent, compared with 10.3 per cent and 12.9 per cent in Q2 and Q1, respectively.

For the full year, the Second Advance Estimates project GFCF to be Rs 66.97 trillion, with a 28.3 per cent share in GDP. This is lower than the First Advance Estimates projections and pre-pandemic levels.

GFCE is projected at Rs 26.85 trillion, or 11.4 per cent of GDP. While lower than the First Advance Estimates, it is higher than pre-pandemic levels, as it is the capital expenditure spending by the Centre and states primarily driving economic revival.

“Government spending remained a strong pillar of support, with the sector growing at 16.8 per cent YoY in Q3,” said Rahul Bajoria, India economist, Barclays.

Persistently high commodity prices will eventually weigh on household finances, even as the Reserve Bank of India has stuck to its projection of 4.5 per cent average retail inflation in 2022-23.

“The biggest worry will be inflation because of skyrocketing oil prices. This could undermine the stability of growth. Rising inflation and falling stock market indices may weigh on consumer sentiment and their purchasing power,” said Rumki Majumdar, economist, Deloitte India.