According to the first advance estimates of national income released by the National Statistical Office (NSO) on Friday, government consumption expenditure and overall investment for financial year 2021-22 (FY22) are projected to cross the pre-pandemic level of FY20. However, household expenditure and consumption still haven’t recovered to that level.
In absolute inflation-adjusted terms, real gross fixed capital formation (GFCF) is projected at Rs 48.5 trillion for FY22, compared with provisional estimates (PE) of Rs 42.2 trillion in FY21 and Rs 47.3 trillion in FY20. Government final consumption expenditure (GFCE) is expected to come in at Rs 17.1 trillion for FY22, compared with PE of Rs 15.9 trillion in FY21 and Rs 15.4 trillion in FY20.
However, private final consumption expenditure (PFCE), a proxy for household spending and consumption, is projected at Rs 80.8 trillion for FY22, compared with Rs 75.6 trillion for FY21 and Rs 83.2 for FY20.
This indicates that despite a strong recovery in FY22 from the contraction last fiscal, consumption recovery has not been broad based.
In percentage terms, for which nominal gross domestic product (GDP) is considered instead of real GDP, the share of PFCE in FY22 GDP is projected to be 57.5 per cent, compared with 58.6 per cent in FY21 and 60.5 per cent in FY20. The share of GFCE is projected at 12.2 percent of FY22 real GDP, compared with 12.5 per cent in FY21 and 11.2 per cent in FY20. This shows that the government’s capital and revenue expenditures have propelled economic activity since the pandemic’s outbreak.
“It basically shows the role of fiscal policy in reviving growth. Through a combination of fiscal transfers and actual spending, the government is playing a more proactive role,” said Rahul Bajoria, India chief economist of Barclays.
GFCF’s contribution to GDP is projected to be 29.6 per cent in FY22, compared with 27.1 per cent in FY21 and 28.8 per cent in FY20.
Analysts said with private investment down and states focusing on welfare schemes rather than capital expenditure, the projection for FY22 could be unfounded.
“The fact that private consumption is still relatively weak, is possibly a sign that there is still some slack in the labour markets,” Bajoria said.
Soumya Kanti Ghosh, chief economic advisor of the State Bank of India, said private and government consumption expenditure are likely to show higher growth, primarily because of the low base of last year.
“Even investment demand, which took the largest brunt last year with double-digit contraction, is expected to witness robust growth of 15 per cent. However, the increase in inventory implies that demand still has to pick up meaningfully. Even imports have grown higher than exports, implying greater domestic absorption and investment demand,” Ghosh said.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
RECOMMENDED FOR YOU