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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.

The government is expecting a revenue loss of Rs 10,000 to 15,000 crore annually due to the recent recalibration in customs duty on iron and steel and plastic, an official said on Monday.

The government, with effect from May 22, waived customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry, a move which will lower the cost for the domestic industry and reduce the prices.

The duty on the import of raw materials used in the plastic industry has also been reduced to lower the cost of domestic manufacturing. Also, to increase domestic availability, the duty on exports of iron ore has been hiked up to 50 per cent, and a few steel intermediaries to 15 percent.

”The revenue loss on account of these customs duty rationalisation is expected to be around Rs 10,000-15,000 crore,” an official said. The customs duty changes in raw materials and intermediaries for iron and steel and plastic were aimed at reducing their prices and also lowering the cost of domestic manufacturing.

States have room to cut value added tax (VAT) on petrol and diesel as they gained Rs 49,229 crore from VAT revenue on fuel when oil prices were increasing and will forego Rs 15,021 crore now that retail prices have been downwardly adjusted through excise cut, State Bank of India Research said in a report on Monday.

The VAT charged by states is ad-valorem, which means their VAT collections rise when petrol and diesel prices increase and get reduced automatically when the Centre cuts excise duty.

“This implies that gains still outstrip the revenue forgone by Rs 34,208 crore and hence states can further cut the oil prices. Maharashtra has gained the most, followed by Gujarat and Telangana,” said SBI’s Chief Economic Advisor Soumya Kanti Ghosh in the report.

Ghosh said that state finances had shown improvement since the Covid-19 pandemic, indicating they have the necessary wherewithal to adjust taxes if so required. This is also reflected in lower state borrowings, the report said.

Taking all these factors into consideration and if the cushion from oil excise is entirely adjusted such that states have no gain or loss from oil revenue over and above the budgetary estimates, Ghosh said that states on an average can still cut diesel price at least by Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their VAT revenue from oil.

“Bigger states like Maharashtra, which have lower debt to GDP ratio, have significantly large fiscal space for lowering their tax on diesel and petrol by even up to Rs 5. The tax-GDP ratio of many states including Haryana, Kerala, Maharashtra, Rajasthan, Telangana, and Arunachal Pradesh is higher than 7 percent. We believe there is compelling reason for these states to adjust taxes on fuel,” Ghosh said.

In a bid to reduce inflationary pressure on households and businesses, the Centre slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre earlier this month. Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have both asked states to consider cutting VAT to further reduce inflation.

SBI Research said that the ultimate solution to reduce the complexities in oil tax structure and bring down extreme volatility in oil revenues due to would be to bring it under the ambit of GST. However, if the two fuels are put under GST, the Centre will have to let go of Rs 20,000 crore input tax credit. Thus, a fair methodology would have to be developed for this, it said.

States have room to cut value added tax (VAT) on petrol and diesel as they gained Rs 49,229 crore from VAT revenue on fuel when oil prices were increasing and will forego Rs 15,021 crore now that retail prices have been downwardly adjusted through excise cut, State Bank of India Research said in a report on Monday.

The VAT charged by states is ad-valorem, which means their VAT collections rise when petrol and diesel prices increase and get reduced automatically when the Centre cuts excise duty.

“This implies that gains still outstrip the revenue forgone by Rs 34,208 crore and hence states can further cut the oil prices. Maharashtra has gained the most, followed by Gujarat and Telangana,” said SBI’s Chief Economic Advisor Soumya Kanti Ghosh in the report.

Ghosh said that state finances had shown improvement since the Covid-19 pandemic, indicating they have the necessary wherewithal to adjust taxes if so required. This is also reflected in lower state borrowings, the report said.

Taking all these factors into consideration and if the cushion from oil excise is entirely adjusted such that states have no gain or loss from oil revenue over and above the budgetary estimates, Ghosh said that states on an average can still cut diesel price at least by Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their VAT revenue from oil.

“Bigger states like Maharashtra, which have lower debt to GDP ratio, have significantly large fiscal space for lowering their tax on diesel and petrol by even up to Rs 5. The tax-GDP ratio of many states including Haryana, Kerala, Maharashtra, Rajasthan, Telangana, and Arunachal Pradesh is higher than 7 percent. We believe there is compelling reason for these states to adjust taxes on fuel,” Ghosh said.

In a bid to reduce inflationary pressure on households and businesses, the Centre slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre earlier this month. Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have both asked states to consider cutting VAT to further reduce inflation.

SBI Research said that the ultimate solution to reduce the complexities in oil tax structure and bring down extreme volatility in oil revenues due to would be to bring it under the ambit of GST. However, if the two fuels are put under GST, the Centre will have to let go of Rs 20,000 crore input tax credit. Thus, a fair methodology would have to be developed for this, it said.

Investors took inspiration from China easing Covid curbs and the US Fed's minutes from the early May meeting released on Wednesday which drove speculation over a potential pause in interest rate hikes later this year after further monetary action in June and July, analysts said.

Here are the factors behind the market rising:

China relaxes Covid curbs: Asian equities traded higher after China eased Covid restrictions in Shanghai and Bejing and offered a slew of economic support measures. Shanghai will loosen Covid test requirements for people who enter public places and Beijing will loosen mobility curbs in several districts from Sunday after authorities said its outbreak is under control. Nikkei rose two percent, Hang Seng gained 1.9 percent, CSI 300 0.5 percent, Taiwan and Kospi were up 1.7 and 1.4 percent respectively.

US Fed minutes: Minutes from the Federal Reserve's latest monetary policy meeting showed policymakers unanimously felt the US economy was very strong even as they grappled with inflation without triggering a recession. The minutes also showed most of the committee's members saw further rate hikes would "likely be appropriate" at upcoming June and July meetings.

Early arrival of monsoon: The monsoon arrived earlier than usual in India raising hopes that output of crops like rice and oilseeds will get a boost after a brutal heat wave hit winter-sown wheat and prompted the nation to restrict exports. The southwest monsoon has set in over Kerala three days ahead of usual, the India Meteorological Department said on Sunday. Timely and normal rains are set to boost production outlook for monsoon-sown crops such as rice, soya beans and pulses and help curb soaring inflation.

India GDP: Investors also await GDP data for the March quarter which is due for release on May 31. Analysts have a wide range of growth forecasts from 2.7 to 4.5 per cent for the quarter. State Bank of India expects growth at 2.7 per cent for the quarter, rating agency Icra sees 3.5 per cent growth, and CRISIL 4.5 per cent.

US payroll data: Investors will be watching out for the latest non-farm payroll report that will be released on Friday. Employers are expected to have added 350,000 jobs in May, according to a consensus compiled by Refinitiv, which would be the weakest reading since January.

India is expected to face a wider coal shortage during the quarter ending September over expectations of higher power demand, an internal power ministry presentation seen by Reuters showed, worsening risks of widespread power outages.

The energy-hungry nation expects local coal supply to fall 42.5 million tonnes short of demand in the September quarter, 15% higher than previously projected, due to higher growth in power demand and lower output from some mines.

The grim forecast shows the extent of the fuel shortage in India, at a time when annual power demand is seen growing at the fastest rate in at least 38 years and global coal prices are trading at near-record levels due to a supply crunch resulting from the Russia-Ukraine crisis.

India has stepped up pressure on utilities to increase imports in recent days, warning of cuts to supply of domestically mined coal if power plants do not build up coal inventories through imports.

However, one of the slides in the presentation showed that most states had yet to award contracts to import coal and that Indian utilities would run out of coal by July if no coal was imported.

Only one state had awarded a contract to import coal as of end-April, a power ministry import status report reviewed by Reuters showed.

India expects domestic coal supply of 154.7 million tonnes, 42.5 million tonnes short of the projected requirement of 197.3 million tonnes in the September quarter, the presentation showed. It previously expected a shortage of 37 million tonnes.

The presentation was made on Friday in a virtual meeting in which the federal coal and power ministers were present, with top energy officials from the federal government and the states in attendance, according to two government officials familiar with the matter.

The federal coal and power ministries did not immediately respond to a request seeking comment. Details on the presentation have not been previously reported.

Coal inventories at power plants have declined by about 13% since April, which translates to eight days of coal requirement, the lowest level at this time of the year in at least nine years. The higher coal demand could also stifle efforts to build power plant inventories.

India now expects the demand for coal from utilities to be 784.6 million tonnes for the year ending March 2023, the presentation showed, 3.3% higher than projected earlier.

The projected annual coal shortage is now 49.3 million tonnes, nearly three times the 17.7 million tonnes projected earlier, the presentation showed.

India reconciled its coal demand projections after higher-than-expected power demand growth in April, when electricity use hit a record high due to soaring temperatures.

Many states on Friday called for the federal government-run Coal India to import coal in bulk and distribute it among the states, the officials said.

States cited high global prices and supply challenges to seek aggregated imports, the officials said, adding that the coal minister had told states the demand would be considered.

Higher imports could put further pressure on state-government-owned power distribution companies, which are already saddled with debt and owe billions of dollars to generators as they have historically absorbed higher input costs to keep tariffs steady.

Coal India did not immediately respond to a request seeking comment. The world's largest miner has not imported coal in the recent years.

Billionaire Sam Bankman-Fried, who’s also the firm’s co-founder, said on Friday that recent rounds of fundraising by FTX and its US entity -- totaling more than $2 billion -- could be used to bankroll the moves.

“FTX is a profitable company,” he said in an interview. “You can look at the amount that we’ve raised over the last year or two -- it’s a few billion dollars. That gives maybe a sense of where we are in terms of cash that was explicitly viewed from a potential acquisition angle.”

Bankman-Fried, 30, has emerged as one of the most recognizable people in crypto. FTX crashed into the mainstream with Super Bowl ads, naming rights to the Miami Heat’s home court, and its logo on Major League Baseball umpire uniforms. Most recently, FTX has been making waves in traditional financial circles with a plan that could cut out brokerages from clearing some derivatives.

FTX has no shortage of funds in its war chest for deal-making. In January, the exchange raised $400 million at a $32 billion valuation, bringing the total amount raised in the prior half a year to close to $2 billion. At the same time, its US entity separately raised $400 million.