RECOVERY PATH

 The provisional estimate of India's GDP(sum total of value of goods and services produced annually) growth released by NSO for the year 2021-22 showed that GDP has grown by 8.7%.Quarter wise estimate showed that Quarter one Q1 recorded highest 20.1%,followed by Q2 8.4%,Q3 5.4%,and Q4 4.1%.Globally country wise estimate indicated that India is the fastest growing major economy of the world relegating China to a backward position. Sector wise growth in India showed that agriculture sector which performed 3.3% growth in 2020-21 maintained 3% in 2021-22,whereas industrial sector which witnessed negative growth of-3.3% in 2020-21 recorded 10.6% growth in 2021-22 by virtue of base effect.Similarly service sector which also experienced negative growth rate of-7.8% in 2020-21 achieved 8.4% in 2021-22.But it may be noted here that India's growth rate declined to a four quarter low of 4.1%in January March 2022 period due to Russia Ukraine war that inflated prices of fuels, food,and other key commodities and impacted global supply chains.

According to Chief Economic Advisor Q4 growth of 4.1% is  better than expected and we have not experienced stagflation. The year to year growth momentum is intact. On year to year basis there are mainly three positive indicators namely private consumption which grew by 7.9% Government consumption expenditure up by 2.6% and capital investment which grew by 15.8% now seen to be fixing and managed to exceed their pre pandemic levels of activity. A closer examination of the quarterly performance reveals that- after rebounding from a low base mining and manufacturing seems to be steadily loosing momentum on growth declining from 8.8 % and 0.2% in Q3 to 6.7% and negative-0.2% respectively in Q4 Moreover weak demand due to omicron and global supply chain disruptions caused by war appears to have contributed to the slow down. While Covid19 was instrumental in reducing demand in sectors like automobiles and consumer goods many continues to suffer from supply chain issues.The anticipated pick up in high contact services like trade transport and communication did not materialise in Q4, with their growth rate at 5.3%, compared with 6,1% in Q3.Despite high hopes of housing revival, both  construction and real estate have shown slower sequential growth.According to Commerce ministry Q4 growth accelerated due to 8 sectors like coal,crude,natural gas,refinery products, fertilizers, cement, steel and electricity. Some of the numbers are impressive like coal, which grew by 28.8% and power by 10.7.But it is difficult to reconcile with the power crisis that was there in April due to shortage of coal and power as being reported. 

Private Final Consumption Expenditure (PFCE) which is the indicator of demand in the economy slowed significantly to 1.76% in the March quarter compared to 7.4% in the preceeding quarter. As a result it's share in overall GDP shrank to 55.51 from 61%.Gross Fixed Capital Formation(GFCF ) a proxy to private investment recorded growth of 5.14 % positively during 4th quarter compared to 2.11% in the previous quarter. It's share in GDP also recovered to 33.6% in the March quarter after slowing to  a five quarter low of 30.1% in the December quarter. Manufacturing activity shrunk by 0.2% in March quarter compared to 0.3% growth in preceeding quarter. The contraction in manufacturing GVA recorded only -0.2%in Q4 from marginal growth of o.3% in the previous quarter impacted by higher commodity prices. Farm sector growth comprising of agriculture,fisheries and forestry achieved 4.1% in the 4th quarter compared to 2.6% in the third quarter. However the bleak wheat harvest portrayed by the third advance estimate of crops  production is a matter of concern. In short quarter 4 showed( growth of   4.1 in agriculture, mining and quarrying 6.7 %,manufacturing-0.2 %, utilities 4.5% ,construction 2%, transport,hotel and trade 5.3 % ,financial services 4.3%,public administration and defence 12.6%.For the entire 2021-22 year top growth  performing sectors were manufacturing 9.9%,mining and quarrying 11.5%  , construction 11.5% , trade hotel transport and communication 11% as against major contraction of -20.2 percent in 2020-21,and public administration and defence 12.6% as against -5.5% in 2020-21.The overall GDP and GVA have recovered to from pre pandemic level by just 1.5

Above discussion broadly indicates that global spill overs of supply shortages, crude oil shock and higher input costs thwarted India's growth momentum in Q4.Agriculture which was a silver lining in FY 21 at 3.3% slowed down to 3% in FY 22. Mining and quarrying, manufacturing, construction, trade hotels transport and communication, public administration defence and other services etc largely showed positive growth for the period 2021-22.As per latest data PMI in the service sector recorded 11year highest level of 58.9% in May 2022 . The overall GDP and GVA growth have recovered from pre pandemic level only by 1.5% and 2.9% respectively despite the slow growth recorded prior to covid19.Future challenges to growth for 2022-23 lies in the form of inflation, global slow down elevated food, commodity and crude oil prices which are worsening supply bottlenecks,the trade deficit and current account deficit . Even though public capital expenditure has been increasing growth of private investment is slow. On the other hand price rise combined with high interest rates dampened household's consumption further. In any case relatively we are  in the recovery path.