India’s GDP grew better than expected in Q4 FY21, but FY22 growth may be subdued
India’s economy developed better than expected in the fourth quarter of FY21, but fiscal 22 GDP growth may be subdued
On Monday, the focus was on India’s GDP and actual budget figures. MOSPI’s first estimate flash data shows India’s economy grew + 1.6% in Q4FY21, accelerating from revised upward growth of + 0.5% in Q3FY21 and above market expectations of + 1.0% (y / y). Sequentially, the Indian economy grew by + 7.5% in Q4FY21 (q / q). The fourth quarter of FY21 was the second consecutive quarter of growth (year-over-year) since the country emerged from a pandemic-induced recession. But overall for the full year (FY21), India’s economy contracted -7.3% less than the previous estimate of around -7.9%.
In Q4FY21, on the expenditure side of GDP, private and public / government spending rebounded while gross fixed capital formation (mainly public CAPEX) increased more rapidly in a context of pent-up demand (the economy being open to nearly 98%) and fiscal stimulus / infra. The economy was also boosted by the demand for festivals and the huge spending of the government as well as various political parties in elections in four large / middle states. But net trade contributed negatively to growth as imports surged at a faster pace than exports. On the production side of the GVA, output increased for manufacturing, construction and utilities, while it decreased for agriculture and agriculture.
Real GDP for T4FY21 was around Rs.38.96T, at a lifetime high compared to the average quarterly run rate / normal economic output (capacity) around Rs.35T. Real GDP FY21 was around Rs.135.12T vs. pre-COVID FY20 GDP Rs.145.70T; still around -7.8% down. Going forward, India’s economic growth could be nearly stable in FY22 amid the COVID tsunami, full / partial lockdowns across the country, slow vaccinations, lack of consumer confidence, economic uncertainty and the aftermath. healing, and muted consumer spending / private CAPEX even after considering lower base effects for FY21.
As the Indian economy was already hovering around 15% above quarterly capacity in Q4FY21, going forward there may not be any significant spare capacity until there is a stimulus. significant budget to stimulate demand (consumer spending) and private investment (business investment).
Either way, economic GDP is just an estimate, not a real number. On the other hand, the country’s tax revenue is a real figure to gas real economic activities. In this sense, India’s fiscal year 21 tax revenue amounted to around Rs.14.24T against Rs.13.57T in fiscal year FY20 and RE Rs.13.45T. But the non-tax revenue for FY21 was at Rs.2.08T against Rs.3.27T in FY20 and RE Rs.2.11T. Total revenue came around Rs.16.32T in FY21 versus Rs.16.84T in FY20; RE Rs.15.56T, recording a decrease of approximately -3.09%. The rise in tax revenue was mainly driven by increased GST / personal tax collection, higher petroleum taxes and better tax compliance, while non-tax revenue was affected by lower remittances of the RBI.
The fiscal deficit for fiscal year 21 was approximately – Rs.18.21T versus – Rs.9.35T; RE: -Rs.18.48T. The budget deficit / current GDP ratio was around -9.22% in FY21 against -4.59% in FY20 and RE: 9.49%. The net interest payment on public / government debt was around Rs.6.82T in FY21 versus Rs. Rs.6.12T in FY20; RE: Rs.6.93T. The interest on debt / turnover ratio was approximately 41.79% in FY21 versus 36.34% in FY20; RE: 44.54%. Basic operating interest / tax revenue is approximately 47.89% compared to 45.10% in FY20; RE: 51.52%. Such a high budgetary leverage is an alarming situation; even before COVID, it was around 45%. India’s sovereign rating could be downgraded if there is no credible plan to lower this high debt ratio in the coming months.
On Tuesday, India’s Dalal Street (Nifty / Sensex) opened in an optimistic mood over better than expected GDP growth for fiscal 21, but soon slips to a moderate manufacturing PMI.
The Markit India Manufacturing PMI slips to a ten-month low of 50.8 in May, just above the sequential boom / recession line of 55.5, well below market expectations of 52.0, as of amid the COVID tsunami and full / partial lockdowns across the country. Both output and new orders grew the least in ten months, as there was a substantial slowdown in growth in input purchases and a new round of job cuts.
Data for May continued to point to longer supplier delivery times, with supplier performance deteriorating for the third consecutive month. The deterioration was linked to global shortages of raw materials and the pandemic. Price data showed that input cost inflation eased to its lowest level in four months but remained strong and above its long-term average. In the meantime, companies have again raised their selling prices to protect their margins, with a solid but declining expense inflation rate starting in April. Finally, the overall level of optimism regarding production prospects for the coming year was at its lowest for ten months.
“The Indian manufacturing sector is showing increasing signs of strain as the COVID-19 crisis escalates. Key indicators for current input sales, production and purchases weakened significantly in May and showed the weakest rates of increase in ten months. In fact, all indices were down from April. Amid a lack of new jobs, goods producers downsized again as the rate of job cuts accelerated in May. That said, the detrimental effects of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown when unprecedented contractions were recorded. Growth projections have been revised downwards as companies become more concerned about the escalating pandemic and local restrictions. The overall level of optimism about production prospects for the coming year was at its lowest level in ten months, a factor that could hamper business investment and lead to further job losses.
Overall, Markit highlighted the contraction of the Indian economy in Q1FY22 compared to T4FY21 amid the 2nd COVID wave and full / partial lockdowns. In the first quarter of FY21, India’s economy contracted by almost -30% sequentially (q / q) amid a full nationwide lockdown for around 9 weeks. This time around, the economy could also contract by around -20% sequentially in Q1FY22. India’s economic recovery and improved revenue collection will depend on the pace of COVID vaccination, reliable herd immunity, and full unlocking of the economy so that the public, as well as the government, are feel confident enough to resume normal activities.
At the end of the line :
Going forward, Modi’s administrator could try to vaccinate as many people in the country as possible with at least a single dose (depending on availability) by H1-2022, so that the COVID pandemic can be brought under control in a meaningful way. with a reduced healing effect on the economy ahead of the UP state election in early 2022. The UP election will be a litmus test for Modi’s political popularity and political priority in the coming days. In the UP and 2024 general elections, we could see WB CM and leader Mamta Banerjee as the PM candidate (backed by almost all other regional opposition political parties, including INC / Rahul Gandhi, and backed by electoral strategist Prashant Kishore). If this happens while Modi’s popularity is plummeting, the Indian market can significantly correct political and political uncertainty in the months to come.
The Modi government relies heavily on monetizing PSU assets for debt deleveraging, but given Prime Minister Modi’s waning popularity due to COVID mismanagement, Modi’s administrator may find it difficult to put into effect. implements various difficult structural reforms including monetization of PSU assets in the coming days (as per FY22 budget / vision document).