FY22 GDP estimates on expected lines, but may have a downside bias – World Affairs SRS

FY22 GDP estimates on expected lines, but may have a downside bias

– World Affairs SRS

Estimating GDP growth, three months before the end of the financial year, with full data for 6 months and partial data for another 2 months in an environment when the pandemic is in full flux and government action unknown Yes, it’s an adventure. Still some grip is needed on the final result, although the numbers are believed to be changing. This advance estimate may also put all other forecasts in some perspective, while the government is bullish on growth in the region of 10%-11%, with the RBI pitching for 9.5% so far.

Firstly, the CSO estimate of 9.2% (as against Bank of Baroda’s 9.3%) indicates that the economy is still going to perform well this year despite the impact of various lockdowns in the fourth quarter of the year. But importantly, it will not be as per the government’s forecast, which also means that the budget for FY 2013 will have to take this number of Rs 133.5 trillion as real GDP into account. It also needs to be mentioned here that the growth rate in FY20 will be around 1.3%, which is quite modest. Hence it can be understood as a compensation for the loss of production in FY 2011 due to covid. It also means that for two consecutive years, growth has been pushed back due to the pandemic.


Second, estimates also suggest that gross fixed capital formation is set to increase from 27.1% to 29.6%. This could be challenging, as private sector investment is low and states have been cautious in their capital expenditure given the uncertainty over their fiscal balances. The Center is perhaps the only entity that is spending as per the budget, but will best complement the private sector and may not lead the investment cycle. This number could be susceptible to a major revision when the final estimate is released.

Third, there are also indications that consumption growth this year is set to accelerate with a growth of 15.4 per cent. While the low base effect supports this number, even if compared to FY20 numbers, it is significantly higher at 8.5 per cent.

Growth in both consumption and investment will likely be revised downwards as the estimate does not take into account the impact of COVID, although it is noted that the government’s response may influence the final results.

Across all sectors, the expected growth has been impressive due to the base effect for FY2011, when most sectors grew. Here too the emerging picture is quite different as compared to FY 2020. Growth in trade, transport etc. was much higher at 11.9%. But the sector still hasn’t made up for the lost production since FY20 and the value addition is about Rs 2.3 trillion less than in the pre-pandemic year. Even manufacturing, which grew at 12.5% ​​this year, will register a growth of only 4.4% in FY20.

Therefore, it appears that the advance estimates indicate that in the absence of any major lockdown being imposed by the government, the economy may return to FY20 levels, which is a very high growth rate of 4%. It was not an encouraging year. The next financial year will be a watchful one and the growth will be more realistic assuming there will be no more Covid shocks. This also means that the RBI may decide to remain stable with the February policy hike. However, inflation numbers will be an important consideration.


Madan Sabnavis is the Chief Economist at Bank of Baroda. Opinions are personal here.

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