Q2FY22 GDP – FUTURE GOOD BUT FOR OMICRON

about 2 months ago
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RBI forecast was 7.9% while most economists said 8 to 8.1%.

The Q2FY22 actually came in at 8.4%, which is much better than what was widely expected. GVA was at 8.5%.

YoY, the picture looks skewed as 2020 was a year predominantly of lockdowns. QoQ, GDP in Q1 was at 20.1% and GVA at 18.8%

More than anything else, it showed that the Indian economy was slowly getting back to normalcy as almost all restrictions were lifted and economic activity rose with renewed fervor.

Farm output came in much higher at 4.5% v/s widely expected at 3.5% and this bump up is despite the patchy monsoon and uneven rainfall distribution; looks like this did not impact rural demand.

GDP at a glance: (QoQ)

  • Manufacturing 5.5% v/s 49.6%
  • Construction 7.5% v/s 68.3%
  • Mining 15.4% v/s 18.6%
  • Agriculture 4.5% v/s 4.5%
  • Trade, hotel and transport 8.2% v/s 34.3%
  • Electricity 8.9% v/s 14.3%
  • Public Admin and Defence 17.4% v/s 5.8%
  • Fin, insurance & real estate 7.8% v/s 3.7%

Q3 is also expected to be good as demand remains firm, economic activity is robust notwithstanding supply bottlenecks and shortages, with festivals giving the added impetus. RBI has pegged FY22 GDP at 9.5%. But if the virus spreads, then Dec could show pressure and that will mean growth could be pegged down. Its an evolving situation and one needs to wait and see how this progresses.

Prior to this, data on fiscal deficit was announced and as at 30th Oct, it was at 36.3% or Rs.5.47 lakh crore of the annual budget target for 2021-22 due to an improvement in the revenue collections, mainly via taxation. Revenue receipts for the April-October period stood at Rs 12.6 lakh crore or 70.5% of the budget estimate, much higher than the 34.2% of Q2FY21. Net tax revenue in the first seven months of the fiscal stood at Rs 10.5 lakh crore or 68.1% of the budget estimate v/s 35.2% (YoY).

Total expenditure stood at Rs 18.3 lakh crore or 52.4% of the budget estimate of which revenue expenditure was at Rs 15.7 lakh crore and capital expenditure stood at Rs 2.53 lakh crore.

And on the core sector growth front, the output of the eight core sectors rose 7.5%.  The eight sectors include coal, natural gas, refinery products, fertilizers, steel, cement and electricity.  Except for crude oil all the seven sectors were in the green.  

Going head, we now have to wait and see how the new variant, Omicron will pan out. If the transmission gets rampant, we could see restrictions coming in and that will impact growth. RBI is scheduled to make a decision on the interest rate on 8th Dec but if by then the virus spread has gone up, then maybe it will be a status quo. But purely on economic parameters, given the growth and inflation, Dec would have been the month when rates could have been hiked.

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