Indian economy grew at 8.7% in FY22, GDP growth slows to 4.1% in March quarter. What does it mean?

India's gross domestic product (GDP) grew at 4.1 per cent in the January-March quarter, pulling down the GDP growth in the 2021-22 financial year to 8.7 per cent.

The GDP growth was estimated at 8.7 per cent in the financial year 2021-22 against a contraction of 6.6 per cent in the previous year.

The economic growth was lower than the 8.9 per cent the government had projected three months back.

China registered an economic growth of 4.8 per cent in the first three months of 2022.

We take a look at what the latest estimates are and why the growth has slowed down.

INDIA'S GDP GROWTH

• India's GDP growth was at 4.1 per cent in the January-March quarter of FY 2021-22 against the 5.4 per cent in the previous three-month period. The GDP had expanded by 2.5 per cent in the January-March period of FY2020-21.

• According to the data released by the National Statistical Office (NSO), India’s real GDP grew to Rs 147.36 lakh crore from Rs 135.58 lakh crore in 2020-21. Gross Value Added (GVA) growth during the fiscal ending March 2022 was at 8.1 per cent as against a contraction of 4.8 per cent in the preceding year.

• The GVA growth in the manufacturing sector accelerated to 9.9 per cent during the year as against a contraction of 0.6 per cent earlier. GVA growth in both mining and construction was 11.5 per cent, however, agriculture sector growth decelerated to 3 per cent from 3.3 per cent in FY21, reported PTI.

• Electricity, gas, water supply and other utility services segment grew by 7.5 per cent during 2021-22. The segment had contracted by 3.6 per cent in the previous fiscal.

WHY THE SLOWDOWN?

• The Indian economy's slowdown is mainly due to a spike in retail inflation, which hit an eight-year high of 7.8% in April. The surge in energy and commodity prices caused partly by the Ukraine crisis is also affecting economic growth, reported Reuters.

• 'Inflation pressures will remain elevated,' V Anantha Nageswaran, Chief Economic Adviser at the Finance Ministry, said after the data release, adding that the risk of stagflation - combining slow growth and high inflation - was low in India.

• Garima Kapoor, an economist at Elara Capital, said a slowdown in global growth, elevated energy prices, a cycle of rising interest rates and a tightening of financial conditions would all be key headwinds, reported Reuters.

WHAT IS THE RBI DOING?

• High inflation had led to the Reserve Bank India (RBI) raising the benchmark interest rate by 40 basis points, earlier this month. In its first-rate hike since August 2018, the RBI raised the repo rate by 40 basis points (bps) to 4.4 per cent and the cash reserve ratio (CRR) by 50 basis points to 4.5 per cent. CRR is a percentage of a bank’s total deposits that it needs to maintain as liquid cash.

• The RBI governor had said that the adverse effects of the unprecedented high global food prices due to the war in Europe are reflected in the domestic market too.

• The RBI is expected to take similar measures when the Monetary Policy Committee meets for the bimonthly review on June 8.