GDP in India

India - GDP

Economy records slowest increase since Q1 2021 in Q1 2022

GDP growth lost momentum, falling to 4.1% year on year in the first quarter, from 5.4% in the fourth quarter of last year. Q1's reading marked the slowest reading in a year. The deceleration was due to a base effect, as in seasonally adjusted quarter-on-quarter terms growth was nearly unchanged. The growth figure meant that, in FY 2021 as a whole, the economy grew 8.7%.

Private consumption growth fell to 1.8% in Q1, marking the weakest expansion since Q4 2020 (Q4 2021: +7.4% yoy). Consumer spending was likely hit by the third Covid-19 wave that ravaged the country earlier in the quarter, as well as higher inflation. Government spending sped up to a 4.8% increase in Q1 (Q4 2021: +3.0% yoy), while fixed investment growth improved to 5.1% in Q1, from the 2.1% increase recorded in the previous quarter.

Exports of goods and services growth fell to 16.9% in Q1, marking the worst result since Q1 2021 (Q4 2021: +23.1% yoy). In addition, imports of goods and services growth moderated to 18.0% in Q1 (Q4 2021: +33.6% yoy), marking the lowest reading in a year.

Commenting on India’s GDP outlook, analysts at Nomura noted:

“The steady dismantling of Covid restrictions and the return of demand for contact-intensive services should remain as the dominant growth drivers in the next few quarters. In particular, we expect this materialise in the ‘Trade, Hotels, Transport & Communication’ sector—which remains 5.8 percentage points below pre-pandemic levels and accounts for [around] 18% of GDP. In addition, the lagged effects of easy financial conditions and the government’s focus on capex should be conducive for the construction sector. A pick-up in real bank credit (and deposit) growth, led by working capital needs and higher retail lending should bode well for financial services. […] There are some risks from the supply-side, such as the ongoing coal crisis and power crunch, which may compel firms to either curb production or find more expensive sources of power (i.e., diesel generators).”

The Consensus projects GDP to expand 7.5% in FY 2022, which is down 0.1 percentage points from the previous month’s forecast, and 6.4% in FY 2023.