India’s real gross domestic product (GDP) will likely grow 9.2% in FY22 upon last fiscal’s sharply-contracted base and exceed the pre-Covid (FY20) level by just 1.3%, according to the first advance estimate released by the National Statistical Office (NSO) on Friday.

The statistical body seems to have refrained from bold projections — many analysts had predicted real growth in the range of 8.4% to 9.5% and the central bank had pegged it at 9.5% — amid mounting worries about a potential flare-up of the fast-evolving Covid situation. Still, some analysts reckon that this projection, too, faces downside risks.

Given that the economy expanded 13.7% in the first half, driven considerably by a conducive base, the NSO’s latest growth forecast for the second half turns out to be 5.6%, as the base effect wanes.

Importantly, the nominal GDP — against which key deficit numbers are benchmarked — is estimated to be higher by almost 4.2% from the budget estimate for FY22. Assuming that fiscal deficit, in absolute term, remains the same as budgeted (Rs 15.07 lakh crore), when expressed as a fraction of GDP, it will ease to 6.5% in FY22 from the budget estimate of 6.8%.

While robust revenue mop-up (net receipts likely around Rs 2 lakh crore higher than budgeted) would have significantly brought down the deficit in absolute term, higher expenditure commitments like release of the entire dues to FCI and a higher-than-budgeted fertiliser subsidy may keep the deficit close to the budgeted level.

However, private final consumption expenditure (PFCE), the principal pillar of the economy, continues to disappoint, as income losses in the wake of the pandemic hit disposable income of people, crimping their discretionary spending. In fact, PFCE is estimated to drop by 2.9% from the pre-pandemic level, even though growth in even FY20 had remained below par (only 5.6%). However, it is estimated to grow 6.9% from the last fiscal, driven primarily by base effect.

Given the fresh curbs on mobility in the wake of the Omicron spread, PFCE will likely remain the biggest bump of the recovery path.

The projected rebound in real GDP growth from last fiscal’s record 7.3% contraction would be mostly assisted by robust government spending and an uptick in fixed investments in select sectors — both would grow 10.7% and 2.6%, respectively, from the pre-Covid levels.

With this, India will regain its position, on an annualised basis, as the fastest-growing major economy in FY22, pipping China’s 8% expansion, as projected by the IMF. The gross value added is estimated to grow 8.6%.

Analysts say given the nominal GDP surge, the Centre’s fiscal deficit target may be met in FY22 despite elevated expenditure commitments, particularly for food and fuel subsidies. As such, against the budgetary full-year goal of 8.5% growth, the Centre’s tax revenue jumped 65% until November this fiscal, buoyed by greater formalisation of the economy (albeit inorganic) and better compliance. Similarly, its expenditure up to November grew 8.8%, compared with a marginal fall in the full-year budget estimate.

On the supply side, the GVA was bolstered by good performance of manufacturing (12.5% growth y-o-y), mining (14.3%), trade, hotels, transport communications, etc (11.9%), construction (10.7%) and continued decent growth of the farm sector (3.9%).

Analysts, however, conceded that the spread of the new Covid strain compounds challenges for policy makers in stimulating growth, especially in light of a potential tightening of interests by key central banks due to the Fed’s taper move. The recent surge in imports could also inflate the drag-down effect of net exports on GDP, they said.

Aditi Nayar, chief economist at Icra, said: “The widening restrictions triggered by Omicron will thwart the nascent recovery in the contact-intensive services, notwithstanding the widening vaccine coverage. Amid the ongoing uncertainty, we currently peg the impact of Omicron on GDP growth in Q4 FY22 at around 40 bps, posing a mild downside to our FY22 GDP growth forecast of 9%.”

M Govinda Rao, chief economic adviser at Brickwork Ratings, said the advance estimates are more optimistic, considering the supply bottlenecks, coal, power and semiconductor shortages and looming third wave of the pandemic. The estimates are the extrapolation of the numbers based on the six to eight months of the current fiscal.

“One positive feature in these annual GDP estimates is the excess of nominal growth over real growth by a margin of 8.4% points. This is mainly due to a high implicit price deflator (IPD)-based inflation of 7.7%. This, in combination with an ongoing base effect, is likely to result in a high growth in Centre’s gross tax revenues (GTR). We assess that the annual growth in centre’s GTR may be close to 35% implying a buoyancy of nearly 2. With these buoyant tax revenues, the government may be able to limit the 2021-22 fiscal deficit to its budgeted level of 6.8% of GDP although a marginal slippage may not be ruled out,” wrote DK Srivastava, chief policy adviser, EY India.