Heatwave and high commodity prices drag down March quarter and FY22 GDP estimates
- Inflation is not only hurting the common people’s pockets, it’s now dragging down the overall economic growth of
- Combined with geopolitical tensions and rising energy costs, India’s GDP story has faced considerable headwinds in the fourth quarter of FY22.
- However, analysts are optimistic about the Indian economy’s resilience going forward.
Rising commodity prices have not only made everything expensive for the common people in the country, they now threaten to drag down India’s economic growth in the March quarter.
According to the latest SBI
The estimates of
The research firm’s findings are in line with
revised its India’s annual GDP growth for calendar year 2022 to 8.8%, from 9.1% before.
For comparison, SBI Research pegs the annual growth number between 8.2-8.5%.
The common thread between all these estimates is that the heatwave and high commodity prices have dragged down the economic recovery, resulting in poor performance when compared sequentially as well as the same period last year.
“The increase in international commodity prices also imparts a net term of trade shock that is widening the trade and current account deficits,” the SBI Research report stated.
That said, the head of India’s central bank,
said that he expects the government to manage the current account deficit ‘comfortably’.
“Unless global crude oil and food prices rise further, the economy seems strong enough to maintain solid growth momentum,” the note by Moody’s said.
“The Indian economy’s recovery remains resilient, although risks stemming from global developments have thwarted the momentum,” the SBI report reiterated, echoing a similar sentiment as Moody’s.
Geopolitical tensions paint a grim outlook
Geopolitical tensions and the Russia-Ukraine war have not only thwarted economic growth globally, developing economies like India which import a lot of energy in the form of crude oil and natural gas, have suffered due to a huge surge in prices over the last few months.
“Emerging economies face risks of capital outflows and higher commodity prices feeding into inflation numbers,” the report added.
Monetary tightening also hampering growth
Central banks across the world, including in India, have begun quantitative tightening after two years of expansionary policies.
The first victim of this change is economic growth – but with inflation being a bigger threat, it is but a given that hikes in interest rates are preferred.
“The global growth outlook appears grim as geopolitical tensions linger, commodity prices remain elevated and withdrawal of monetary accommodation gathers speed,” said the SBI report.
On a positive note, ICRA, Moody’s and S&P paint a relatively optimistic scenario for FY23.
ICRA projected a growth of 12-13% in the June 2022 quarter, which is healthy from the high base of the same period a year ago.
S&P, on the other hand,
estimates the Indian economy to grow at 7.3% – slightly ahead of estimated inflation of 6.3%.
Moody’s estimates the growth to be around 8.8% for the calendar year 2022, and 5.4% in 2023.