India's GDP likely to grow 9.2% in FY22

The size of the Indian economy is expected to surpass the pre-pandemic level by growing at 9.2% in the fiscal year ending March 31, 2022, after recovering from a historic contraction in the preceding year. The estimated growth is below the Reserve Bank of India's pre-third wave projection of 9.5% last month. According to the first Advance Estimates released by the National Statistical Office (NSO), India’s nominal GDP may expand to Rs 232.1 trillion in FY22, from Rs 203.5 trillion in FY20. In FY21, nominal GDP had slipped to Rs 197.5 trillion because of the Covid pandemic that led to a nationwide lockdown, which hit both private consumption and output.

Advance Estimates, so that the government has an annual estimate of GDP to be incorporated in the Budget calculations even at the cost of less accuracy. Economists, however, believe the first Advance Estimates may have downplayed the imminent impact of the third wave of the pandemic on the Indian economy for the fourth quarter of FY22. Thus, they could have overestimated the overall growth.

Earlier, Wall Street brokerage Goldman Sachs estimated India's GDP growth at 9.1% in 2022. The company said it expects consumption and investment to be an important contributor to growth in 2022 as the economy fully reopens, driven by a notable improvement in the virus situation and adequate progress on vaccination. At the same time, The World Bank and Moody’s have projected the Indian economy to grow at 8.3% and 9.3%, respectively.

The Reserve Bank of India (RBI) has retained its projection of 9.5% annual GDP growth in FY22, although it has revised downwards its December-quarter growth estimate to 6.6% from 6.8%, and the March-quarter growth estimate to 6% from 6.1%. The present crisis on the Omicron spread is expected to adversely impact the contact-sensitive services sector more than the manufacturing sector and this may hurt growth momentum in the March quarter.

During the second wave of the pandemic earlier, while manufacturing mostly held up, services contracted in May, June, and July, according to the PMI data. During the first wave of the pandemic in 2020, a contraction in the services sector was sharper than in manufacturing; it took seven months to return to expansion territory.