MPC cuts GDP growth projection for Q3, Q4, cites supply crisis and Covid

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday slightly cut its economic growth projections for the third and the fourth quarters of the current financial citing volatility in commodity prices and financial markets, global supply disruptions and the impact of the Omicron coronavirus variant.

However, higher-than-expected gross domestic product (GDP) growth rate in the second quarter of the year prompted the committee to retain the economic growth at 9.5 per cent for the entire 2021-22.

The Committee pegged economic growth at 6.6 per cent for the third quarter of the year, down from its earlier projection of 6.8 per cent and six per cent for the fourth quarter, lower than its earlier forecast of 6.1 per cent.

The economy grew 8.4 per cent during the second quarter, higher than the Committee’s expectations of 7.9 per cent. The cut in the projections came even as the government recently said that the economy is showing strong signs of recovery from the devastation caused by the pandemic, with an upswing being reported in 19 out of the 22 economic indicators as compared to the pre-Covid levels.

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It said the indicators in September, October and November this year are higher than their pre-pandemic levels in the corresponding months of 2019.

These indicators included electronic toll collection (ETC) which at Rs 108.2 crore in October was 157 per cent of the pre-Covid levels of 2019 and UPI volumes which are nearly four times at 4.22 billion. Other indicators included merchandise imports, e-way bills, coal production, rail freight traffic, fertiliser sales, power consumption, tractor sales, cement production, port cargo traffic, fuel consumptions, air cargo, the index of industrial production and the core sector output.

This morning, Fitch Ratings cut India’s economic growth forecast to 8.4 per cent from earlier 8.7 per cent for the current financial year.

The rating agency said risks to the recovery remain, especially in the near term, given that less than one third of the population is fully vaccinated. The newly discovered Omicron variant has added to risk, it said.

However, the rating agency said the economy staged a strong rebound in the second quarter of 2021-22 from the Delta variant-induced sharp contraction. According to its estimates, GDP rose a sharp 11.4 per cent quarter on quarter in seasonally adjusted terms after slumping by 12.4 per cent in the first quarter.

“However, the bounce was more subdued than we expected in our September outlook. The rebound in the services sector was weaker than hoped for,” it said.

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On the positive side, Fitch said the recovery in domestic economic activity is turning increasingly broad-based, with the expanding vaccination coverage, slump in fresh COVID-19 cases and rapid normalization of mobility.

It raised GDP growth projections to 10.3 per cent from the earlier expected 10 per cent for the next financial year.

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