According to initial forecasts published by the National Bureau of Statistics on Friday, the Indian economy is expected to grow by 9.2 percent in 2021-22. If you consider that the economy grew by almost 14 percent in the first half of the year, these estimates result in growth of around 5.6 percent in the second half of the year. This is below the estimates of the RBI, which had forecast real GDP growth of 9.5 percent for the full year at the meeting of the monetary policy committee in December, of which 6.6 percent in the third and 6 percent in the fourth quarter. In nominal terms, however, the NSO estimates that the economy will grow by 17.6 percent this fiscal year. This figure is significant as it will form the basis of the Union’s 2022-23 estimates that will be presented to Parliament in a few weeks’ time.
The forecasts confirm that by the end of 2021-22 the Indian economy would have just reached the level of 2019-20 (real) and grew by only 1.3 percent. The disaggregated data shows that most sectors are expected to recover to pre-Covid levels. However, commerce, hotels, transportation and communications, which have been badly hit by the pandemic, continue to struggle. While the full year growth numbers are supported by the small base effect, the implied estimates for the second half of the year for sectors such as manufacturing, construction, finance, real estate and professional services are not very encouraging. These figures also suggest that both private consumption and investment activity are likely to remain subdued in the second half of the year.
Since the initial projections are only based on data from seven to nine months, they will be revised in the coming months as more data become available. While this adds some uncertainty to the estimates, this year the surge in Omicron cases and the resulting economic impact that will show up in the fourth quarter (January-March) will only exacerbate the problem. The rapid spread of Omicron has undoubtedly led to considerable uncertainty on the economic front. As state governments begin to impose restrictions – some have put in place night and weekend curfews as well as restrictions on high-contact services – it will only be seen in the coming weeks and months to what extent this wave of infections will affect the economy. While the economic impact has appeared to have subsided with each further rise in infections, as businesses and consumers became more adaptable, services have historically been severely impacted. Analysts have already started scaling back their growth estimates, but given the uncertainty, significant differences in their assessments of the economic impact of the third wave remain.
This editorial first appeared in the print edition on January 7, 2022 under the title “A hesitant recovery”.
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