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India’s GDP likely grew just 3.5% in Q4 of 2021-22: ICRA

India’s GDP growth may have slowed down to 3.5% in the fourth quarter of 2021-22, from 5.4% in the October to December 2021 quarter, rating agency ICRA has projected. The economy’s Gross Value Added (GVA) is expected to rise even slower at 2.7% between January and March 2022 compared to 4.7% in the previous quarter.

The rating firm attributed the downturn in growth momentum to the impact of higher commodity prices on margins, decline in wheat yields and the hiccups in the recovery of contact-intensive services owing to the third COVID-19 wave as well as the high base from last year.

The National Statistical Office (NSO) is scheduled to release updated national income estimates for 2021-22 on May 31. In its last estimates, the NSO had projected a GDP growth of 8.9% for the last financial year, assuming a 4.8% growth rate for the fourth quarter.

“The last quarter (Q4) of 2021-22 was challenging, with the Omicron-fuelled third wave of COVID-19 arresting momentum in contact-intensive services, and a pervasive pressure on margins from higher commodity prices,” said Aditi Nayar, chief economist at ICRA.

“Moreover, the heat wave has adversely affected wheat output in March 2022. We are apprehensive that both agriculture and industry will post a sub-1% GVA growth, whereas services growth will print at around 5.4% for the quarter”, she added.

This indicates a sharp sequential dip — Services had recorded GVA growth of 8.2% in the previous quarter, while industry had grown 0.2% and Agriculture by 2.6%.

The Omicron effect could halve the growth rate for contact-intensive trade, hotels, transport, communication and services sectors to around 3% in Q4 from 6.1% in Q3, the agency reckoned.

ICRA expected India’s retail inflation to average 6.5% in 2022-23 and said the recent cuts in petroleum taxes, which have been backed by reduction in State levies on petrol and diesel by Maharashtra and Kerala, could bolster sentiment and create some cushion for stretched household budgets.

“Moreover, the downshift in the inflation trajectory for the remainder of this year has pared the likelihood of sharply front-loaded monetary tightening”, Nayar noted.