After 4.1% GDP growth in Q4, what next for the Indian economy?

The Statistics Ministry on Tuesday evening came out with Q4, FY 22 results -- which put India's GDP growth in January to March period at 4.1%. The Indian economy slowed down for the third straight quarter. While the overall growth for the financial year 2021-22 is estimated at 8.7%, down from the estimate of 8.8 per cent.

During the March quarter, agriculture grew at 4.1 per cent, while manufacturing contracted 0.2 per cent. Public administration, defence and other services, which represent government expenditure, grew 7.7 per cent during the March quarter, supporting the overall economic growth.

Among other sectors, mining and quarrying and construction grew 6.7 per cent and 2 per cent, respectively.

Now, coming to GDP, from 20.3% in the first quarter and 8.5% in the second quarter, it had slowed to 5.4% in the third quarter of FY22.

According to government data, the economy expanded by 8.7% in 2021-22, compared to a 6.6% contraction in 2020-21. In its second advance estimate, the NSO had projected GDP growth during 2021-22 at 8.9%

The FY22 Q4 GDP slowdown can be attributed to the impact of localised restrictions due to the Omicron wave and high inflation levels hitting private consumption.

From the pre-pandemic year of 2019-20, India’s real GDP has grown only 1.5%. In other words, it has expanded from Rs 145.16 trillion to Rs 147.36 trillion in two years.

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Last month, Morgan Stanley had pared India’s growth forecast for FY23 to 7.6 per cent from 7.9 per cent estimated earlier. It had said that a slowdown in global growth, higher commodity prices and risk aversion in global capital markets had exposed India's economy to downside risks.

In May, S&P Global Ratings slashed India’s growth forecast to 7.3 per cent from 7.8 per cent for FY23 on the back of rising inflationary pressure and the longer-than-expected Russia-Ukraine war.

According to agency reports, the fiscal deficit for 2021-22 improved to 6.71 per cent of the GDP over the revised Budget estimate of 6.9 per cent. This was mainly on account of higher tax realisation.

According to government data, the tax receipts during the fiscal were at Rs 18.2 trillion as against the revised estimates of Rs 17.65 trillion. The total expenditure, too, was higher at Rs 37.94 trillion against the revised estimates of Rs 37.7 trillion. The revenue deficit at the end of the fiscal was 4.37 per cent for fiscal 2021-22.

While the worst of the Covid-19 pandemic seems to be behind us, we are yet to make any considerable progress compared to pre-pandemic levels. In that context, a new set of challenges, particularly inflation, are looming on the horizon. How the government deals with them will determine how fast we can move past the scars of the pandemic.