On 07th January, the MOSPI released the first advance estimates (AE) for FY22 GDP at 9.2%. This is slightly below the RBI estimates of 9.5% for FY22, but there is a deeper story in the contents.
Which sectors are helping GDP?
Two basic components of agriculture and manufacturing showed traction in the FY22 fiscal year. Agriculture showed growth for FY21 and FY22 while the growth in manufacturing for FY22 will more than make up for the loss in FY21. The manufacturing growth would have been much better had it not been for the slowdown in the auto sector. The GDP for FY22 is showing growth over FY20, neutralizing the COVID-19 impact.
Why are services still lagging?
To be fair, not all services are down. For example, realty and financial services are just about higher over FY20 due to the lag effect of the pandemic. The real pain has come from contact intensive sectors like trade, hotels and tourism where the FY22 GDP is still substantially lower than the FY20 levels. That is not surprising considering the quantum of impact that the pandemic had on these sectors. However, construction is giving signals of picking up while the state sponsored administrative and defence services have shown a solid growth. It looks like, barring high contact sectors, most of the other sectors have largely built on their pre-pandemic levels.
Too much focus on trade
If you look at the specific activities that have boosted GDP in FY22 over FY20, there is a huge impact of trade. Both export and imports are up more than 11% over corresponding FY20 levels and that means, the real substantive growth has come from trade. That has been the one big story. While exports have grown over FY20, levels, the rise in imports has resulted in record trade deficit levels, month after month. For FY22, India may end with trade deficit of more than $180 billion of which about one-third will be driven by gold imports. The result is visible in a 78% rise in the allocation to Valuables, which has been a big factor in GDP growth in FY22.
Private consumption falters
That is the key worry in the triggers to GDP growth. Private final consumption is still 2.9% below the FY20 levels. That is a clear indication of two things. Firstly, household financials are still under strain due to a combination of an economic slowdown and job losses. Secondly, this also indicates that the consumers are very sceptical about too much of consumption spending due to the uncertainty in the environment. In a way, that is an indication of low levels of consumer confidence. The recurrence of the Omicron variant has not helped the matters. Things look in control, unless the Omicron variant returns and pulls down private consumption further.
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