India Ratings and Research (Ind-Ra) has revised downwards the country's GDP growth forecast for the ongoing financial year from 9.2% to 8.6% year-on-year.

The National Statistical Organisation (NSO), which has forecast 9.2% GDP growth for the year, is likely to peg the FY22 real gross domestic product growth at ₹147.2 lakh crore in its second advance estimate, according to an India Ratings analysis. NSO will release the second advance estimate of national income on Monday.

The major reason for the likely downward revision in GDP growth is the upward revision of FY21 GDP to ₹135.6 lakh crore in the first revised estimate of national income for FY21, released on January 31, 2022, the ratings firm said.

The GDP growth of FY21 has now improved to negative 6.6% from the provisional estimate (PE) of negative 7.3% released on May 31, 2021, the agency said.

This comes days after the finance ministry said that high frequency indicators show that the Indian economy is likely to grow more than 9% in the current financial year, in line with the advance estimates incorporated in the Economic Survey. The survey had pegged FY23 GDP growth in the range of 8%-8.5%.

Besides this, the second revised estimate of national income for FY20 stood at 3.7% compared to 4.0% projected earlier while the third estimate retained FY19 growth at 6.5%.

"The growth rates of GDP drivers from the demand side namely private final consumption expenditure (PFCE), government final consumption expenditure (GFCE), gross fixed capital formation (GFCF) have undergone a change," it said.

Due to these revisions, the agency said, quarterly GDP growth numbers are also expected to undergo a change.

As FY20 GDP growth has been revised downwards, Ind-Ra now expects GDP growth of all the four quarters of FY20 to be lower than present estimates. This would mean a likely upward revision of FY21 and downward revision of FY22 quarterly GDP numbers.

Ind-Ra estimates show that GDP growth in Q1FY22 and Q2FY22 may decline by 90-110 basis points than estimated earlier and the Q3FY22 and Q4FY22 may come in at 5.6% and 5.1% respectively, down from 6.0% and 5.7% estimated earlier.

It takes about three years to finalise the final GDP data for a year. It starts with the first advance estimate and then is followed up with the second advance estimate, then provisional estimate, the first revised estimate , second revised estimate and finally the third revised estimate, Sunil Kumar Sinha, principal economist and director of Public Finance at Ind-Ra, said.

In a separate report, the rating agency said that fair valuing of the equity infused by the government in five public sector banks (PSBs) in H1FY21 through non-interest-bearing bonds could lower the banks’ effective Tier 1 capital levels in the range of 50-175 basis points than reported.

Gross Domestic Product (GDP)

India Ratings revises FY22 GDP growth rate to 8.6%

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