Is the Indian economy out of the woods?

India’s fourth-quarter GDP data released Monday showed that economic growth has not come roaring back after the pandemic. It slowed down for the third consecutive quarter, growing 4.1% in the January-March period.

For the full fiscal, growth came in at 8.7% provisionally after the pandemic-related contraction of 6.6% in 2020-21.

While the real GDP in 2021-22 is just 1.5% higher than the level in the pre-pandemic year of 2019-20, indicating that the bounce-back following the pandemic has only been sufficient to make up for the contraction in the previous year.

Contact-intensive industries were affected by the Omicron wave in January. Trade, hotels, transport and services related to broadcasting is the only sector that is yet to recover fully. It is still 11% below FY20 level.

What emerged as another cause for concern was the 0.2% contraction in manufacturing activities in the fourth-quarter from the previous year. Experts attributed the contraction to high commodity prices and supply disruptions.

Private spending saw a tepid growth of 1.8% in Q4. India’s FMCG market grew 6% in the January-March quarter over last year led by double-digit price growth, according to Nielsen IQ.

However, the sector’s volume declined by 4.1%. The drop in consumption was more prominent in rural markets, which saw a 5.3% dip -- the highest consumption slowdown in the last three quarters.

HDFC Bank’s Principal Economist Sakshi Gupta said the consumption recovery remains under a cloud of uncertainty for the ongoing financial year with rising inflationary pressures.

However, there are several bright spots too. India's factory activity expanded at a better-than-expected pace last month as overall demand remained resilient despite persistently high inflation, according to S&P Global’s Manufacturing Purchasing Managers' Index.

The PMI came in at 54.6 in May, slightly lower than April’s 54.7, but above the 50-level separating growth from contraction for an eleventh month, the private survey showed.

RBI data showed robust credit off take in April. Banks’ non-food credit grew at 11.3% while loans to agriculture and allied activities expanded by 10.6%. Personal loans segment continued to perform well, registering acceleration in growth to 14.7% in April, primarily driven by housing and ‘vehicle loans segments.

GST collection too has remained buoyant. The collection in May, for the month of April, grew 44% year-on-year, to nearly Rs 1.41 trillion. It is down 16% from the record high collection of Rs 1.68 trillion in April but one must note that collections in May have always been lesser than in April, which pertains to the returns for March, the closing of the financial year. 

Higher GST collections, to an extent, have been driven by high inflation which has pushed nominal GDP growth to 19.5% in FY22. 

Meanwhile, in the automobile sector, global supply-side disruptions in semiconductor chips had led to declining production and increased delivery timings, impacting registrations adversely. Passenger car sales, tractor sales and two-wheeler sales have been falling for past several quarters.

However, auto sales improved in May compared with April as supply

bottlenecks eased. The country's biggest carmaker, Maruti Suzuki, reported a 7.1% rise in factory dispatches while Tata Motors’ sales, including passenger and commercial vehicles, rose 3.1%. Ashok Leyland’s sales spiked 12% while Escorts’ tractor sales rose marginally at 1.15% over the previous month.

Bajaj Auto’s domestic two-wheeler sales registered a 3% increase month-on-month. 

Speaking to Business Standard, Sujan Hajra, Chief Economist, Anand Rathi Securities said GDP growth slowed mainly due to negative net export. We are on a growth path but number are not as yet impressive, he said adding that consumption is not doing well but urban situation is relatively better. Public capex has started  picking up and govt is attempting investment-led recovery. Major high-frequency indicators suggest growth will gain further momentum going forward, he said.

An eight-year-old high inflation, soaring energy and commodity prices due to the Russia-Ukraine war are threatening to squeeze the economy. Amid all this, the forecast of a good monsoon has come as a respite. Rains will not only help the agriculture sector but also cool off the soaring inflation -- which is clouding the economy’s near term prospects. A good monsoon will also boost rural demand, which in turn will help the economy recover.