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India’s economy probably grew slower than previously estimated last year, with virus curbs in the final quarter seen as a drag on activity while the war in Europe has added a new inflation hurdle to recovery.

Data due Tuesday is likely to show gross domestic product in the year to March 2022 grew 8.7 per cent from a year ago, according to the median estimate in a Bloomberg survey. That’s slower than the 8.9 per cent expansion projected by the Statistics Ministry three months ago.

In the January-March quarter, the economy likely expanded 3.9 per cent, according to the survey, a performance that will mark the low point of the year.

The pace of growth eased amid the surge in omicron infections and temporary activity restrictions, said Rahul Bajoria, chief India economist for Barclays Plc. “While the movement restrictions were short-lived, other headwinds from global supply shortages and higher input costs also impeded the pace of expansion.”

Asia’s third largest economy had just begun recovering from the pandemic-induced slump when a surge in Omicron cases in January brought back some of the virus-related restrictions. The war in Ukraine, in February, further added to its woes, pushing up commodity prices and squeezing supplies further.

Earlier this month, elevated prices forced India’s central bank to hike rates by 40 basis-points in an off-cycle meeting. Governor Shaktikanta Das, who is due to next review monetary policy June 8, has signaled more hikes to tame inflation, a move that may hurt demand further.

“Elevated commodity prices, slowing global growth and monetary policy tightening across most markets are likely to weigh on growth prospects,” said Teresa John, an economist with Nirmal Bang Equities Pvt in Mumbai. “We continue to expect contact-intensive services to lead the economic recovery even as high commodity prices weigh on manufacturing margins.”

The central government’s fiscal deficit for FY22 has come in at 6.7 percent, undershooting the revised target by 20 basis points, data released on May 31 by the Controller General of Accounts showed.

As per the 2022 Budget, the fiscal deficit was revised to Rs 15.91 lakh crore. As such, the deficit, at Rs 15.87 lakh crore, is Rs 4,552 crore lower than the target.

As per the data released on May 31, March – the month for which data was awaited – saw the Centre post a fiscal deficit of Rs 2.70 lakh crore.

The National Statistical Office (NSO) will release the data for India's Gross Domestic Product (GDP) growth in Q4 FY22 and full financial year 2021-22 on Tuesday.

According to reports, Asia's third-largest economy is expected to accelerate in the January-March quarter from a year earlier.

GDP growth stood at 20.3 per cent in April-June quarter (Q1) of FY 2021-22 and 8.5 per cent in July-September quarter (Q2). During the third quarter of 2021-22, economic growth slowed to 5.4 per cent but was higher than China's GDP expansion of 4 per cent during the same period and the country retained its position as the world's fastest growing major economy.

As per the provisional estimates released in May 2021, the GDP had contracted by 7.3 per cent during 2020-21 on account of the outbreak of Covid-19 and subsequent nationwide lockdown to contain the pandemic. The NSO has also revised downward the real GDP growth number for 2019-20 to 3.7 per cent as against the earlier estimate of 4 per cent.

The growth in GDP during 2021-22 is estimated at 8.9 per cent as against a contraction of 6.6 per cent in 2020-21, according to Reuters.

According to the median estimate in a Bloomberg survey, India is likely to register GDP growth of 8.7 per cent in FY 2021-22.

Earlier in May, the Reserve Bank of India (RBI) raised the benchmark repo rate by 40 basis points in an unscheduled meeting.

The rupee's nearly 4 per cent depreciation against the dollar this year has also made imported items costlier, prompting the federal government to restrict wheat and sugar exports and cut fuel taxes, joining the RBI in the battle against inflation.

According to a Reuters report, supply shortages and higher input prices were weighing on output in the mining, construction and manufacturing sector, even as credit growth has picked up and states are spending more.

The consumer sentiment slid in early May, dipping for the second month in a row, as rising fuel prices and broader inflation hit household finances, according to a Refinitiv.

The unemployment rate for persons of 15 years and above in urban areas slipped to 8.7 per cent in October-December 2021 from 10.3 per cent in the year-ago quarter, showed a NSO survey.

RBI Governor Shaktikanta Das said last week that the central bank's primary focus was to bring inflation closer to its target but it could not disregard concerns around growth.

CII President TV Narendran said the Indian economy is expected to grow 7.5-8 per cent this fiscal year with exports playing a key role in the country's success story, however the country needs to remain prepared for any fallout of next wave of Covid-19 pandemic, and the impact of the ongoing Russia-Ukraine war.

Earlier, the World Bank and International Monetary Fund have slashed India's FY23 growth forecast to 8 per cent and 8.2 per cent, respectively.

Fuel prices remained unchanged on May 31 more than a week after the government announced an excise duty cut on petrol by a record Rs 8 per litre and on diesel by Rs 6 per litre on May 21.

The excise duty cut translated into a reduction of Rs 9.5 a litre for petrol in Delhi and Rs 7 a litre for diesel. Petrol in Delhi now costs Rs 96.72 a litre as against Rs 105.41 a litre before while diesel costs Rs 89.62 a litre as opposed to Rs 96.67 earlier.

In Mumbai, one litre of petrol costs Rs 111.35 and diesel Rs 97.28. In Chennai, petrol and diesel prices are Rs 102.63 and Rs 94.24 per litre respectively. In Kolkata, petrol is Rs 106.03 and diesel is Rs 92.76 per litre.

Oil marketing companies (OMCs) are passing on the excise duty cut to consumers despite losing Rs 13.08 a litre on petrol and Rs 24.09 per litre on diesel.

India meets 80 percent of its oil needs through imports.

Finance minister Nirmala Sitharaman on May 22 said the reduction in central taxes on petrol and diesel has been in road and infrastructure cess that is not shared with states, dismissing opposition's criticism that the move will impact states' share in central revenues.

Sitharaman has also announced that the government would provide a subsidy of Rs 200 per LPG cylinder to over nine crore beneficiaries of the Pradhan Mantri Ujjwala Yojana.

Also Read: Oil prices rise after EU bans most Russian oil imports

Oil prices rose in early Asian trade on May 31 after European Union leaders said they had agreed to cut 90 percent of oil imports from Russia by the end of this year.

Brent crude futures for July, which will expire on May 31, gained 63 cents to $122.30 a barrel at 0012 GMT.

United States West Texas Intermediate (WTI) crude futures were trading at $117.65 a barrel, up $2.58 from the May 27 close. There was no settlement on May 30 due to a US public holiday.

The ban on Russian oil is expected to tighten a global crude market which has already been facing supply constraints amid post-pandemic demand recovery.