India’s GDP grows 4.1% in Q4; expands 8.7% in FY22: Govt data

India’s economy slowed down for the third consecutive quarter in the January to March period to grow at 4.1%, while the National Statistical Office pared down overall growth forecast for FY22 a tad to 8.7% from 8.8% estimated in January.

However, elevated level of inflation and rising interest rates are expected to temper economic growth momentum in FY23.

Growth in Asia’s third-largest economy was pencilled in at 4% for the January-March quarter from the same period a year ago in a May 23-26 Reuters poll of 46 economists, down from 5.4% in Q4 2021.

During the March quarter, agriculture grew at 4.1% while manufacturing contracted 0.2%. Public administration, defence and other services, which represent government expenditure, grew 7.7% during the March quarter, boosting overall economic growth. Among other sectors, mining and quarrying and construction grew 6.7% and 2% respectively.

S&P Global Ratings in May slashed India’s growth forecast to 7.3% from 7.8% for FY23 on rising inflationary pressure and longer-than-expected Russia-Ukraine war.

Morgan Stanley last month also pared India’s growth forecast for FY23 to 7.6% from 7.9%, estimated earlier. It said that a slowdown in global growth, higher commodity prices and risk aversion in global capital markets expose Asia’s third-largest economy to downside risks.

GDP growth stood at 20.3% in April-June quarter (Q1) of FY 2021-22 and 8.5% in July-September quarter (Q2). During the third quarter of 2021-22, economic growth slowed to 5.4% but was higher than China’s GDP expansion of 4% during the same period and the country retained its position as the world’s fastest growing major economy.

The economy’s near-term prospects have been darkened by a spike in retail inflation, which hit an eight-year high of 7.8% in April. The surge in energy and commodity prices following the Ukraine crisis is also exerting a drag on economic activity.

The Reserve Bank of India (RBI) raised the benchmark repo rate by 40 basis points in an unscheduled meeting early this month.

Soaring prices and the subsequent hit to consumer spending and investments dampened India’s economy, as the Reserve Bank of India faces a finely balanced struggle to tame inflation via rate hikes without hurting economic growth, economists said.

Earlier this month, Reuters reported Reserve Bank of India is likely to raise its inflation projection in June and will consider more interest rate hikes.

Asia’s third largest economy had just begun recovering from the pandemic-induced slump when a surge in Omicron cases in January brought back some of the virus-related restrictions. The war in Ukraine, in February, further added to its woes, pushing up commodity prices and squeezing supplies further.

The rupee’s nearly 4% depreciation against the dollar this year has also made imported items costlier, prompting the federal government to restrict wheat and sugar exports and cut fuel taxes, joining the RBI in the battle against inflation.

High-frequency indicators showed supply shortages and higher input prices were weighing on output in the mining, construction and manufacturing sector, even as credit growth has picked up and states are spending more.

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