India's GDP growth slows to 5.4% in Q3, estimated to rise 8.9% in FY22

In the current fiscal, GDP growth stood at 20.3% in April-June quarter and 8.5% in July-September period

India's economic growth slowed to 5.4 per cent in the third quarter of 2021-22 but higher than China's GDP expansion of 4 per cent during the same period and the country retained its position as the world's fastest growing major economy.

In the current fiscal, GDP growth stood at 20.3 per cent in April-June quarter and 8.5 per cent in July-September period.

The National Statistical Office (NSO) in its second advance estimates of national accounts released on Monday pegged the country's growth for 2021-22 at 8.9 per cent, a tad lower than 9.2 per cent estimated in its first advance estimates released in January.

Besides, NSO revised its estimates of GDP contraction for the coronavirus pandemic-hit last financial year (2020-21) to 6.6 per cent. Earlier, the estimate was 7.3 per cent contraction.

Indian economy contracted 23.8 per cent in April-June in 2020 and 6.6 per cent in July-September quarter in 2020.

"While an adverse base was expected to flatten growth in Q3 FY2022, the initial estimates of the NSO are sorely below our expectations (6.2 per cent for GDP), with a marginal rise in manufacturing and a contraction in construction that is surprising despite the heavy rainfall in the southern states," Aditi Nayar, Chief Economist at ICRA, said.

"GDP at constant (2011-12) prices in Q3 of 2021-22 is estimated at Rs 38.22 trillion as against Rs 36.26 trillion in Q3 of 2020-21, showing a growth of 5.4 per cent," an official statement said.

According to the statement, real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in 2021-22 is estimated to attain a level of Rs 147.72 trillion as against the first revised estimate of GDP for the year 2020-21 of Rs 135.58 trillion, released on January 31, 2022.

The growth in GDP during 2021-22 is estimated at 8.9 per cent as against a contraction of 6.6 per cent in 2020-21.

In value terms, GDP stood at Rs 38,22,159 crore in October-December 2021-22, higher than the Rs 36,22,220 crore in the corresponding period of the 2020-21.

According to NSO data, Gross Value Added (GVA) growth in the manufacturing sector growth remained almost flat at 0.2 per cent in the third quarter of 2021-22, compared to a growth 8.4 per cent a year ago.

Farm sector GVA growth was slow at 2.6 per cent in the third quarter compared to 4.1 per cent growth a year ago.

Construction sector GVA declined by 2.8 per cent as against a growth of 6.6 per cent a year ago.

Mining sector grew by 8.8 per cent, as against a contraction of 5.3 per cent.

Electricity, gas, water supply and other utility services segment posted a growth of 3.7 per cent in the third quarter of this fiscal against 1.5 per cent expansion a year ago.

Similarly, trade, hotel, transport, communication and services related to broadcasting grew by 6.1 per cent compared to 10.1 per cent contraction a year ago.

Financial, real estate and professional services growth stood at 4.6 per cent in Q3 FY22 compared to a growth of 10.3 per cent.

Public administration, defence and other services grew at 16.8 per cent during the quarter under review compared to 2.9 per cent contraction a year earlier.

Meanwhile, China recorded a growth of 4 per cent in the October-December period of 2021.

"India's GDP growth for Q3FY22 came in a tad below our expectation of 5.7% as the manufacturing sector recorded tepid growth amid unexpected de-growth in the construction sector. However, we have decisively moved above the pandemic slump with all sectors of the economy seeing a rebound.

"Going forward, growth in Q4FY22 will benefit from the unlock trade as most states have removed pandemic-related restrictions, but weak rural demand and geopolitical shock due to Russia-Ukraine war may disrupt global growth and supply chains. Impending pass-through of higher oil and gas prices may also act as a dampener for domestic demand sentiment," said Garima Kapoor, economist, Elara Capital.

"India's real GDP growth at 5.4% in Q3 was primarily driven by strong growth in the services sector and a pick up in private final consumption spending. While growth in agriculture has slowed in Q3, it has become negative in the construction sector.

"On the positive side, the levels of real spending whether by the private sector or the government sector are higher than the pre-pandemic levels.

"Given the encouraging trends in government's revenues and spending until Jan 2022 and the upward revision in the nominal GDP growth rate for FY22, the fiscal deficit to GDP ratio for FY22 may come out to be better than what was projected by the (federal) budget," said Rupa Rege Nitsure, group chief economist, L&T Financial Holdings. 

"The growth number is really disappointing," said Sujan Hajra, chief economist at Mumbai-based Anand Rathi Securities, citing weakening rural consumer demand and investments.

India, which covers nearly 80% of its oil needs through imports, possibly faces a widening trade deficit, a weaker rupee and higher inflation after crude prices spiked above $100 a barrel, with a hit to growth seen as the main concern.

"Given the geopolitical instability and crude oil prices, we think the fiscal and monetary policy accommodation will continue," Hajra said.

A 10% rise in oil prices could shave 0.2 percentage points off India's GDP growth while adding 0.3 to 0.4 percentage points to retail inflation, according to Nomura's estimates.

Sakshi Gupta, senior economist at HDFC Bank, said India was likely to feel the ripple effects of widening sanctions against Russia.

"We see a downside risk of 20-30 basis points to our base forecasts," she said. For now HDFC sees the economy growing 8.2% in the next fiscal year.