India growth slows on inflation, higher oil prices

India’s economy slowed even more in the first three months of 2022, the National Statistics Office reported Tuesday, as inflation and increasing oil costs hampered the country’s post-pandemic recovery.

According to NSO data, Asia’s third-largest economy gained 4.1 percent year on year in the fourth quarter.

The annual growth rate for the 12 months ending in March was 8.7%.

Rising global commodity prices have sparked concern among policymakers, with India’s central bank announcing its first interest rate hike in nearly four years this month.

The country of 1.4 billion people imports more than 80 percent of its crude oil and the cost of meeting domestic fuel demand has soared since Russia invaded Ukraine in February.

India is also the world’s largest importer of edible oils, prices of which are at record highs since the conflict began.

Read more: India considering spending additional $26 billion to fight inflation

“The pandemic may be receding, but growth has not returned,” economist Mihir Swarup Sharma of the New Delhi-based Observer Research Foundation told AFP.

“Instead, imports as a proportion of GDP — driven by higher prices for food, fuel, and other commodities — are rising.”

Prime Minister Narendra Modi’s government this month announced tax breaks to offset higher food and petrol costs.

Higher-than-expected revenues could give New Delhi some “headroom” to cushion consumers from inflation, Sharma said.

But the $26 billion cost of the scheme will likely blow out the government’s budget deficit beyond its target for 2022-23, which it put at 6.4 percent of GDP.

Consumer inflation hit 6.95 percent in March, according to the Reserve Bank of India, which slashed its own growth forecast to 7.2 percent for the year ending March 2022.

“Alarmingly, persistent and spreading inflationary pressures are becoming more acute with every passing day,” Reserve Bank of India governor Shaktikanta Das said this month.

India saw a dramatic uptick in economic activity in the second half of 2021 after the coronavirus pandemic sparked its worst recession since independence from Britain 75 years ago.

Extended lockdowns hit consumer spending and brought factories to a standstill during the Covid-19 outbreak, which at its peak saw thousands of people dying across the country each day, overwhelming hospitals and crematoriums.

Read more: Indian government trims tax on fuel essential commodities to fight inflation

Several Indian states briefly imposed mild restrictions on public gatherings and commercial activity after an outbreak of the highly infectious Omicron variant of the virus.

Further headwinds are expected to affect growth in the June quarter, with India announcing an unexpected restriction on wheat exports and a limit on sugar exports to other countries earlier this month.

India is the world’s second-largest producer of both crops, but scorching temperatures and the country’s hottest March on record, which has been blamed on climate change, have lowered production.