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10 Jan 2022



  • As per the first advance estimates released by the NSO, India’s FY22 GDP is expected to see a growth of 9.2% compared to the contraction of 7.3% in FY21.
  • Compared to the pre pandemic level in FY20, GDP is estimated to clock 1.3% expansion, pointing towards the recouping of earlier losses.
  • Nevertheless, negative output gap is seen to persist with substantial drag in case of high contact intensive service sectors on the supply side and private consumption on the demand side.
  • The V-shaped recovery clearly finds significant support from favorable statistical base.
  • Nevertheless, exports, investments and government consumption are expected to be in drivers’ seat.
  • However, we believe that there can be upside to NSO’s FY22 GDP growth estimate on account of higher than budgeted government expenditure and gradually improving vaccination cover.
  • As such, for the whole of FY22, we hold on to our growth estimate of 10.0% for now with moderate downside risks that will depend on the way the third wave plays out over the next 1-2 months.

As per the first advance estimate of national income for the year FY22, India’s GDP is projected to grow at 9.2% vis-à-vis a contraction of 7.3% in FY21. The estimate is somewhat lower than our existing forecast of 10.0% albeit with material downside risk.

While the first advance estimate of GDP is based on limited data set, it primarily serves as an essential input for budgetary arithmetic. Since it is similar to a nowcast, it could be vulnerable to revisions with incorporation of expanded data set.

  • From this perspective, it is important to note that the NSO (National Statistical Office) projects FY22 Nominal GDP growth at 17.6% (vs. -3.0% in FY21), significantly higher than the FY22 budgetary assumption of 14.4%. This creates an additional fiscal space up to 0.3% of GDP, which would be useful for the government in presenting the revised estimates later in the year.
  • A similar reprieve can be expected in case of central government’s total debt-to-GDP ratio as liabilities are likely to follow the budgeted trajectory.

Moving beyond the practical application of the first advance estimate of GDP and focusing on the signal, we present the following key takeaways with respect to the pre pandemic status:

  • The FY22 GDP estimate represents a growth of 1.3% vis-à-vis the pre pandemic year of FY20. At an aggregate level, it represents a reversal of pandemic related GDP losses. However, there continues to persist a significant negative output gap, which "may take several years to close” (RBI DG Michael Patra during Dec-21 policy press conference).
  • In FY22, government consumption and exports have clearly played a key role in reinstatement of the GDP levels. In contrast, private consumption is set to remain below its pre pandemic level by 2.9% in FY22. This highlights the asymmetric nature of recovery amidst fragility of private consumption demand.
  • From the supply side, FY22 GVA is projected to grow at 8.6% vs. a contraction of 6.2% in FY21. In comparison to the pre pandemic year of FY20, GVA shows a modest expansion of 1.9%. This recouping of pandemic related GDP loss continues to be supported by the sectors of i) Electricity, Gas, Water Supply, etc., ii) Agriculture, Forestry, Fishing, etc., iii) Public Administration, Defense, & Other Services, iv) Manufacturing, and v) Mining & Quarrying. Meanwhile, Trade, Hotels, Transport & Communication is the only major broad sector that is projected to remain below its pre pandemic levels by 8.5%. This captures the severe impact of the lockdown restrictions on high contact intensive services.

Focusing next on the V-shaped economic recovery in FY22 (which finds substantial support from the pandemic distorted statistical base), we note that:

  • The demand side recovery is expected to be led by robust double-digit growth in exports and investments (aided by public capex).
  • On the supply side, momentum in FY22 is expected to be led by i) Mining & Quarrying (14.3% YoY), ii) Manufacturing (12.5% YoY), iii) Trade, Hotels, Transport & Communication (11.9% YoY), iv) Construction (10.7% YoY), v) Public Administration, Defense, & Other Services (10.7% YoY). The relatively low value-add in agriculture sector at 3.9% in comparison is predominantly on account of absence of favorable base effect, which most other sectors enjoyed – in fact, growth in the primary sector appears robust compared to its long run (20-years) average of 3.2%.


As we had been highlighting in our earlier reports, the pandemic induced skewness in base is catapulting most of the activity indicators in FY22 – the 33-year high GDP growth estimated by the NSO needs to be seen in this light. The base effect will play truant in H2 FY22, albeit in the other direction, i.e., a sequential improvement in momentum will get accompanied by a lower annualized growth number. For example, although GVA and GDP will pick up sequentially in H2 FY22 over H1 FY22, the annualized growth for H2 FY22 is imputed at 4.8% and 5.6%, a sharp move down from 13.2% and 13.7% respectively in H1 FY22.

Moving beyond base effects, we note that there are both upside and downside risks to the GDP growth estimate by the NSO:

  • On the upside, the increase in government expenditure by Rs 3.2 tn (as per our estimate) due to Covid related relief programs including vaccination, hike in DA/DR allowance, etc. will create back ended spending boost as overall expenditure disbursal was moderate during H1 FY22.
  • India has currently inoculated 94% and 67% of the adult population with one and two dose of vaccine respectively. This has seen significant progress from the 70% and 26% corresponding milestone achieved by end of H1 FY22. Enhanced vaccination coverage will hopefully help in improving labour participation, bring on board pent-up demand, while also mitigating the severity of any fresh pandemic waves.

On the downside, uncertainty from Omicron needs to be assessed. The 7dma of daily infections has already exceeded the count of 1,10,000 from its recent low of 6,642 on Dec 26. Since the situation is still unfolding at a rapid pace (subject to state level restrictions and containment strategies), it would be difficult to upfront ascribe any magnitude to the downside risk.

  • Early trend with respect to severity shows limited impact on hospitalization in the major cities such as Mumbai and Delhi, something which is in line with the global trend.
  • Early trend on mobility in early Jan-22 shows some moderation in case of ‘Retail & Recreation’, ‘Grocery & Pharmacy’, ‘Parks’, and ‘Transit Stations’. While ‘Workplace’ related mobility so far remains unaffected, it is likely to also witness a moderation in the near term given the rapid rise in cases.

Nevertheless, we expect the economic cost of the third wave to be less severe as compared to the previous surges going by the current data on hospitalization and mortalities. As such, for FY22 we hold on to our growth estimate of 10.0% for now albeit with increased downside risks that will depend on the way the third wave plays out over the next 1-2 months.

Tables 1 and 2: India’s GVA and GDP: Break-up

Chart 1: India starts to witness a third wave