According to the first advance instrument released by the government yesterday, India’s GDP growth is likely to be 9.2 percent in the financial year 2022. However, this is 30 basis points lower than the RBI’s estimate of 9.5 per cent last month. However, on a percentage basis, this is the highest growth rate in the last 17 years. The reason for this is that last year’s base rate was very small due to the corona epidemic.
On the expenditure front, gross fixed capital formation is expected to grow 15 per cent year-on-year in 2022, the highest level in the last 10 years. Even in this big figure, last year’s Low Bose has shown its effect.
The government’s final consumption expenditure and private consumption expenditure have stood at 7.6 per cent and 6.9 per cent, respectively. In 2021, gross fixed capital formation and private final consumption expenditure contracted by 10.8 per cent and 9.1 per cent, respectively. On the other hand, there was an increase of 2.9 percent in the Government Final Consumption Expenditure.
10.7% growth expected in the construction sector, the government’s focus on infra projects will see further growth
It would be better to compare the low base 2022 advance estimate with 2020. The 2022 estimate is not comparable to 2021 due to the 2021 low base. If compared with 2020, the GDP growth rate of 2022 is only 1.3 percent higher. The effect of the government’s efforts to boost the economy has been seen in its final consumption expenditure figures. Which is 10.7 percent higher than FY 2020, but investment by the private sector has been very low, which is 2.9 percent less than 2022.
Overall, the demand situation in the economy remains weak, given that the RBI may keep its policies accommodative for a long time to push growth. However, many market participants say that rising inflation may force the central bank to tighten monetary policies and increase interest rates.
However, till now RBI’s argument has been that the increase in prices is not due to increase in demand but due to supply side problems, in view of which interest rates will not be increased yet. RBI believes that the rise in inflation is not of a permanent trend. Once the supply-related issues are resolved, inflation will see a decline. Based on this logic, the RBI has been in favor of maintaining a moderate monetary policy to push growth.
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