GDP (Gross Domestic Product) of Indian economy recorded growth of 4.1% during Jan-March’22 quarter (Q4’FY22) and 8.7% for full year as per the data released by MOSPI (Ministry of Statistics and Programme Implementation) today. The figure isn’t a reason for much cheer as it come after a decline of 6.6% in FY21, the first pandemic year. GDP has grown marginally by 1.5% over FY20 level. However, there is significant sectoral variation with some of sectors being more than 6% over FY20 whereas one of them is still below FY20 level, the K-shaped recovery conundrum. Here is a brief analysis of GDP and its constituents.

As per the MOSPI release, Indian economy recorded GDP of Rs 147.4 lakh crore during FY22 against Rs 135.6 lakh crore in FY21. In comparison, GVA (Gross Value Added) stands at 136.1 lakh crore against Rs 125.8 lakh crore last year, implying growth of 8.1%, lower than GDP growth rate. Lower GVA growth implies government’s net tax collection (taxes minus subsidy) has grown more than GVA which is a good sign.

Sectoral Analysis – 

GDP of the economy is calculated by estimation of GVA (Gross Value Added) for eight sectors – Agriculture, Mining, Manufacturing, Electricity (& other utilities), Construction, Trade (hotels, transport etc), Financial (real estate & professional services) and Public Administration (& defence etc). To this, net government tax (tax collection minus subsidy outgo) is added to arrive at GDP.

In terms of sectors, Manufacturing has recorded a decline, although marginally, of 0.2% in Q4 but has grown at 9.9% during the full year. Growth stands at 9.3% against FY20 implying significant revival. Construction, another important sector for employment generation, grew by 2.0% in fourth quarter and 11% in full year. However, growth rate over FY20 is up only marginally at 3.4%. Public administration, largely government expenditure, recorded the highest growth of 7.7% in Q4 and 12.6% during the full year. Growth rate over FY20 stands at 6.4%. However, growth of this segment need not necessarily be a healthy trend as any increase here could also lead to higher fiscal deficit if it not backed by similar growth in tax revenues.

‘Financial, real estate & professional services’, accounting for highest share of 23% in GVA, recorded growth of 4.3% during Q4 and 4.2% in full year. Incidentally, the sector along with agriculture, were the only ones to manage growth in FY21. Sector’s growth rate is 6.7% over FY20. The smaller sectors, agriculture, mining and electricity, recorded reasonable growth in the range of 4-7% during Q4 but for full year, it varies from 4-12%. All the three are above their pre-pandemic level.

Among all the eight sectors, only ‘Trade, Hotels, Transport etc’, which had declined by over 20% during FY21, still remains lower by a significant 11.3% over its FY20 level. The silver lining is that Q4’22 figure has, for the first time, crossed its pre-pandemic level, although marginally by 1.3%. The recovery of this segment is critical to address urban unemployment.

Expenditure Analysis –

GDP is also calculated from the expenditure side and is equal to amount spent by the three segments – expenditure by households called private final consumption expenditure (PFCE), expenditure by government called Government final consumption expenditure (GFCE) and expenditure on creating physical assets or investment called gross fixed capital formation (GFCF). Approximate share of the three were 57%, 11% and 32% in FY22.

PFCE remains subdued, growing at barely 1.8% in Q4 and 8% for full year. Growth over FY20 is only 1.5%. While on one hand, the economy faces the challenge of subdued consumption, rising prices because of supply chain disruption is forcing RBI to increase interest rate and reduce money supply, even though it poses the risk of further dampening growth.

GFCE (Government expenditure) has increased by 4.8% during the quarter and 2.6% for the full year. Govt had to increase its spending during Q4, initially because of emerging threat of Omicron and afterwards, to minimise the impact of Russian war on Ukraine. At Rs 4.6 lakh crore, GFCE is even higher than Rs 4.3 lakh crore in June’20, the peak lockdown quarter and almost 25% higher than Q3’FY22. While government had largely tightened its belt till Q3 to keep fiscal deficit under check, better than expected revenue mobilization, possibly gave it the confidence to increase its last quarter spending.

Investments seem to doing some heavy lifting, growing by 5.1% in Q4 and 16% during the year. Over FY20, its growth stands at 3.7%, which is not too bad considering the general economic condition and low capacity utilization across most sectors. Investments may have got some support from government sponsored Production linked Incentive (PLI) scheme. Going forward, while private consumption is expected to remain subdued because of job losses, risk aversion and holdback of expenditure by the middle class, government expenditure and exports would remain critical to improve growth momentum.


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