There are two things that stand out. The Indian economy began to revive in March 2013 more than a year before the current government took office after a period of contraction following the Global Financial Crisis.
But, more importantly, since the third quarter of 2016-17 (October to December), this recovery has transformed into a secular slowing of growth. While the RBI did not declare so, many experts believe the government’s move to demonetise 86 percent of India’s currency overnight on November 8, 2016, was the catalyst that sent the country’s GDP into a tailspin.
The GDP growth rate steadily fell from over 8% in FY17 to around 4% in FY20, just before Covid-19 hit the country, as the ripples of demonetisation and a poorly designed and hastily implemented Goods and Services Tax (GST) spread through an economy already struggling with massive bad loans in the banking system.
PM Modi voiced hope in January 2020, when GDP growth fell to a 42-year low (in terms of nominal GDP), saying: “The Indian economy’s high absorbent capacity demonstrates the strength of the country’s foundations and its ability to recover.”
The foundations of the Indian economy were already weak in January last year well before the outbreak as an examination of key factors shows. For example, in the recent past (Chart 2), India’s GDP growth trend mirrored an exponential development pattern “Even before Covid-19 came the market, there was a “inverted V.”
In 2021, what would India’s GDP be?
In its second advance estimates of national accounts released on Monday, the National Statistical Office (NSO) forecasted the country’s growth for 2021-22 at 8.9%, slightly lower than the 9.2% estimated in its first advance estimates released in January.
Furthermore, the National Statistics Office (NSO) reduced its estimates of GDP contraction for the coronavirus pandemic-affected last fiscal year (2020-21) to 6.6 percent. The previous projection was for a 7.3% decrease.
In April-June 2020, the Indian economy contracted 23.8 percent, and in July-September 2020, it contracted 6.6 percent.
“While an adverse base was expected to flatten growth in Q3 FY2022, the NSO’s initial estimates are far below our expectations (6.2 percent for GDP), with a marginal increase in manufacturing and a contraction in construction that is surprising given the heavy rains in the southern states,” said Aditi Nayar, Chief Economist at ICRA.
“GDP at constant (2011-12) prices is estimated at Rs 38.22 trillion in Q3 of 2021-22, up from Rs 36.26 trillion in Q3 of 2020-21, indicating an increase of 5.4 percent,” according to an official release.
According to the announcement, real GDP (GDP) or Gross Domestic Product (GDP) at constant (2011-12) prices is expected to reach Rs 147.72 trillion in 2021-22, up from Rs 135.58 trillion in the first updated estimate announced on January 31, 2022.
GDP growth is expected to be 8.9% in 2021-22, compared to a decline of 6.6 percent in 2020-21.
In terms of value, GDP in October-December 2021-22 was Rs 38,22,159 crore, up from Rs 36,22,220 crore in the same period of 2020-21.
According to NSO data, the manufacturing sector’s Gross Value Added (GVA) growth remained nearly steady at 0.2 percent in the third quarter of 2021-22, compared to 8.4 percent a year ago.
GVA growth in the farm sector was weak in the third quarter, at 2.6 percent, compared to 4.1 percent a year before.
GVA in the construction sector decreased by 2.8%, compared to 6.6% rise a year ago.
The electricity, gas, water supply, and other utility services segment grew by 3.7 percent in the third quarter of current fiscal year, compared to 1.5 percent growth the previous year.
Similarly, trade, hotel, transportation, communication, and broadcasting services expanded by 6.1 percent, compared to a decline of 10.1 percent a year ago.
In Q3 FY22, financial, real estate, and professional services growth was 4.6 percent, compared to 10.3 percent in Q3 FY21.
During the quarter under examination, public administration, defense, and other services expanded by 16.8%, compared to a decrease of 2.9 percent a year earlier.
Meanwhile, China’s economy grew by 4% between October and December of 2021.
“India’s GDP growth for Q3FY22 was a touch lower than our forecast of 5.7 percent, as the manufacturing sector grew slowly and the construction industry experienced unanticipated de-growth.” We have, however, decisively emerged from the pandemic recession, with all sectors of the economy showing signs of recovery.
“Going ahead, unlock trade will help growth in Q4FY22, as most governments have eliminated pandemic-related limitations, but weak rural demand and geopolitical shock from the Russia-Ukraine conflict may impair global growth and supply chains.” The impending pass-through of higher oil and gas costs could affect domestic demand mood, according to Elara Capital economist Garima Kapoor.
“Strong growth in the services sector and a pick-up in private final consumption expenditure drove India’s real GDP growth to 5.4 percent in Q3.” While agriculture’s growth slowed in Q3, the construction sector’s growth became negative.
“On the plus side, actual expenditure levels in both the private and public sectors are greater than they were before the pandemic.
“Given the encouraging trends in government revenues and spending until January 2022, as well as the upward revision in the nominal GDP growth rate for FY22, the fiscal deficit to GDP ratio for FY22 may come out better than what the (federal) budget projected,” said Rupa Rege Nitsure, group chief economist, L&T Financial Holdings.
“The growth number is pretty disappointing,” Sujan Hajra, chief economist of Mumbai-based Anand Rathi Securities, said, citing weaker rural consumer demand and investments as reasons.
After crude prices soared beyond $100 a barrel, India, which imports virtually all of its oil, might face a wider trade imbalance, a weaker rupee, and greater inflation, with a knock to GDP considered as the main concern.
“We believe the fiscal and monetary policy accommodation will remain, given the geopolitical volatility and crude oil prices,” Hajra added.
According to Nomura, a 10% increase in oil prices would shave 0.2 percentage points off India’s GDP growth while adding 0.3 to 0.4 percentage points to retail inflation.
Widening sanctions against Russia are likely to have a ripple impact on India, according to Sakshi Gupta, senior economist at HDFC Bank.
“We see a 20-30 basis point downside risk to our base predictions,” she said. For the time being, HDFC expects the GDP to rise 8.2% in the coming fiscal year.
What factors contribute to a low GDP?
The Reasons for a Fall in Real GDP
- Customer Spending Patterns Have Changed. Any decline in customer spending will result in a drop in GDP.
- Interest Rates are Increasing. When interest rates rise, the cost of borrowing money rises as well.
Is India truly developing?
When India’s rebounding GDP growth was mentioned, Baldev Kumar flung his head back and laughed. In comparison to the same period previous year, the country’s economy grew by 8.4% between July and September. India’s Home Minister, Amit Shah, declared that the country might be the fastest-growing economy in the world by 2022.
The crumpled receipt in his fingers, on the other hand, revealed a different story: the tomatoes, onions, and okra he had just purchased cost nearly twice as much as they had cost in early November. At the onset of the epidemic, the 47-year-old mechanic had lost his work. His next job was at an auto parts store, which he left earlier this year. He is now employed at a car showroom in the Domlur neighborhood of Bengaluru, and he is concerned that he will be laid off soon as vehicle sales in India remain low.
He has postponed his daughter’s wedding because he is worried if he will be able to afford it. He used to commute to work by bus. To save a few rupees, he now walks the five-kilometer (three-mile) route. He said, referring to the GDP estimates, “I don’t know which India that is in.” “The India in which I live is under trouble.”
The third-largest economy in Asia is rising again, and at a quicker rate than most other big economies. Despite a recent drop, its stock market indices, such as the Sensex and Nifty, are much higher than they were at the start of 2021. However, many economists caution that while these figures are encouraging, they disguise a troubling dilemma some even call it a crisis that India faces as it approaches 2022.
In November, inflation increased by 14.23%, continuing a trend of double-digit hikes that has plagued India for some months. Last month, fuel and energy prices increased by roughly 40%. According to the Centre for Monitoring Indian Economy, an independent research tank, urban unemployment has been rising since September and is now above 9%. “Inflation disproportionately affects the poor,” said Jayati Ghosh, a senior development economist at Jawaharlal Nehru University in New Delhi.
Why can’t the Indian government print more money?
Nirmala Sitharaman, the Finance Minister, said on Monday that the government has no intentions to create money to address the current economic crisis brought on by the coronavirus outbreak. We go over the regulations that govern money printing and why the government can or cannot do it at will.
Nashik’s Currency Note Press produces banknotes for the Indian government. The Reserve Bank of India is consulted before printing banknotes of a specific denomination (RBI).
When governments borrow or print additional money to enhance liquidity in the economy, this is known as deficit financing. The government might invest and spend the newly acquired funds to help the economy recover. This can be accomplished by, for example, constructing infrastructure, which in turn produces work for a large number of people. Direct cash transfers to the impoverished, who will subsequently spend it, are another option.
Is India considered developed?
India is a southern Asian emerging and developing country (EDC). It is the world’s largest democracy as well as one of the fastest growing economies.
What is the most pressing issue in the Indian economy?
India’s main economic problems are: a low per capita income. The populace is heavily reliant on agriculture. Population pressure is high.
Is the Indian economy expanding?
India’s GDP is developing at a rate of 9.2%, making it one of the fastest-growing big economies in the world: Niti is the CEO of Niti. Amitabh Kant, the CEO of Niti Aayog, said on Monday that the Indian economy is growing at 9.2% and will continue to do so in the next years.
Is India’s economy expanding?
According to the first advance projections provided on Friday by the National Statistical Office (NSO), India’s GDP is predicted to grow 9.2 percent this fiscal year, buoyed by the base effect of a 7.3 percent decline last year.