The country's gross domestic product (GDP) growth and gross value added (GVA) at basic prices in Q4 FY22 seem to have eased to a tepid 3.5% and 2.7%, respectively, ratings agency ICRA says in its latest report. Prime reasons for slower recovery are believed to be higher commodity prices on margins, decline in wheat yields and the hiccups in the contact-intensive services amid Covid-19 and a high base. The GDP and GVA for Q3 FY22 stood at 5.4% and 4.7%, respectively.

The recent cut in excise duties on petrol and diesel can help boost sentiments, while improving consumers’ disposable incomes, and cooling the retail inflation trajectory, the ratings agency believes.

Aditi Nayar, chief economist at ICRA, said during Q4, the Omicron-fuelled third Covid wave arrested the momentum in contact-intensive services and pervasive pressure on margins from higher commodity prices. "Moreover, the heatwave has adversely affected wheat output in March 2022. We are apprehensive that both agriculture and industry will post a sub-1% GVA growth in Q4 FY2022, whereas services growth will print at around 5.4%”.

Notably, the GVA growth in services, industry and agriculture, forestry and fishing was estimated by the National Statistical Office (NSO) at 8.2%, 0.2% and 2.6%, respectively, for Q3 FY2022.

Nayar hailed the excise duty cut on petrol and diesel, coupled with VAT cuts by some states. This could bolster sentiment and create some cushion within stretched household budgets to undertake nonessential spending, she said. "Moreover, the downshift in the inflation trajectory for the remainder of FY2023 has pared the likelihood of sharply front-loaded monetary tightening,” Nayar adds.

The ratings agency has projected the average CPI inflation for FY23 at 6.5%, pencilling in a 40 bps repo hike in the RBI's June 2022 policy review, amid a terminal rate of 5.5%.

A slow recovery in the contact-intensive services after the widening vaccination coverage was halted by the third Covid wave-induced curbs in January-February 2022, it says. "Accordingly, ICRA projects a halving in the growth of trade, hotels, transport, communication and services related to broadcasting to 3% in Q4 FY2022 from 6.1% in Q3 FY2022," says ICRA.

While the industrial sector witnessed a limited impact of the third wave in the first half of the quarter, the manufacturing volume growth remained subdued in Q4 FY2022, says the ratings agency. However, with the Russia-Ukraine conflict and renewed lockdowns in China in March, ICRA expects a marginal value-added growth of the industrial sector in Q4 FY22, dampened by manufacturing and construction.

The third advance estimate of crop production released by the Centre indicates a mixed trend in the production of rabi crops relative to the final estimates for FY2021. While the output of pulses (+15.8%), oilseeds (+12.8%) and coarse cereals (+3.4%) is expected to have risen in FY2022, the output of wheat (-2.9%) and rice (-2.8%) is expected to have trailed the FY2021 levels, says ICRA.

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