India registers a record 20.1% YoY jump in GDP estimates for Q1FY22 – is it impressive or a glass half full?

Economy reviving or start of downfall

The current growth is on a low base of previous year during the corresponding quarter after the economy went to a standstill because of nationwide lockdown 

The Government announced estimates of the Gross Domestic Product (GDP) of the country for the April-June quarter of the financial year (FY) 2021-22 (April-March) which shows a record increase in the growth rate at 20.1 per cent on the year-on-year basis. What should we take from this? Let us take a closer look to what it reveals and what it hides.

GDP at Constant Prices (2011-12) in Q1 of 2021-22 is estimated at Rs 32.38 lakh crore as against Rs 26.95 lakh crore in Q1 of 2020-21 according to a data release by Ministry of Statistics and Programme Implementation (MOSPI). This is a staggering growth from the contraction of 24.4 per cent in Q1 2020-21, when the pandemic hit the country forcing nationwide lockdown.

Quarterly GVA at Basic Price at Constant (2011-12) Prices for Q1 of 2021-22 is estimated at Rs 30.48 lakh crore as against Rs 25.66 lakh crore in Q1 of 2020-21, showing a growth of 18.8 per cent.

Meanwhile, GDP at Current Prices in the year Q1 2021-22 is estimated at Rs 51.23 lakh crore, as against Rs 38.89 lakh crore in Q1 2020-21, which is up by 31.7 per cent as compared to contraction of 22.3 percent in Q1 2020-21. GVA at Basic Price at Current Prices in Q1 2021-22, is estimated at Rs 46.20 lakh crore, as against Rs 36.53 lakh crore in Q1 2020-21, showing a growth of 26.5 per cent.

Let us now see how different sector fared in April-June of FY21 and FY22:

  • Agriculture, Forestry and Fishing – There was a 3.5 percent YoY growth in Q1FY21 versus 4.5 per cent in Q1FY22.
  • Mining and Qyarrying -There was a contraction of 17.per cent in Q1FY21 versus growth of 18.6 per cent in Q1FY22.
  • Manufacturing dropped to (-) 36 per cent in Q1FY21 versus 49.6 per cent in Q2FY22.
  • Electricity, Gas, Water Supply and other utility services dropped by (-) 9.9 per cent in Q1FY21 versus 14.3 per cent in Q1FY22.
  • Trade, Hotels, Transport, Communication & Services related to Broadcasting dropped by (-) 48.1 per cent in Q1FY21 versus 34.3 per cent in Q1FY22.
  • Financial, Real Estate & Professional Services dropped by (-) 5 per cent in Q1FY21 versus 3.7 per cent in Q1FY22
  • Public Administration, Defence & Other Services decreased by (-) 22.4 per cent in Q1FY21 versus 18.8 per cent in Q1FY22. This category also includes activities related to education, health, recreation and other personal services.

This is a quarterly estimates of GVA at Basic Prices in Q1 (April-June) of 2021-22 (at 2011-12 Prices).

One must also look at the quarterly estimates of expenditures on GDP in Q1 (April-June) of 2021-22 (at 2011-12 Prices):

  • Private Final Consumption Expenditure (PFCE) was at 55.4 per cent of GDP in Q1FY21 which reduced 55.1 percent in Q1FY22
  • Government Final Consumption Expenditure (GFCE) stood at 16.4 per cent in Q1FY21 versus 13.03 per cent in Q2FY22.
  • Gross Fixed Capital Formation (GFCF) in Q1FY21 was 24.4 per cent of GDP versus 31.6 4 per cent in Q1FY22.
  • Change in Stocks (CIS) was at 1 per cent of GDP in Q1FY21 versus 1.25 per cent in Q1FY22.
  • Valuables was 0.1 per cent of GDP in Q1FY21 versus 0.5 per cent of GDP in Q1FY22.
  • Exports was at 20.5 per cent of GDP in Q1FY21 versus 23.7 per cent of GDP in Q1FY22.
  • Imports was at 19.2 per cent of GDP in Q1FY21 versus 25.7 per cent of GDP in Q1FY22

It is nobody’s guess that the current growth is on a low base of previous year during the corresponding quarter after the economy went to a standstill because of nationwide lockdown.

During the second wave, which also peaked between April and June, the states imposed restrictions according to their requirements and preparedness. The economy, especially the formal sector was more prepared this time to deal with the unknowns.

That has reflected in the growth across sectors including agriculture manufacturing and services sector which have shown positive growth during the quarter ended June 2021.

After an unprecedented contraction during the Q1FY21, it was known the recovery on this base will be quite sharp. But India still needs to climb a mountain to reach to the pre-pandemic levels. One must also know that the picture in the pre-pandemic world was not rosy for us as the growth was slowing down. India registered a below 5 per cent GDP growth over several quarters before the pandemic hit it.

The numbers, however, show a different picture when compared with either the preceding quarter or the pre-pandemic first quarter of fiscal 2019-20.

At Rs 32.38-lakh crore in Q1FY22, GDP at constant prices was down almost 17 per cent on the quarter-on-quarter (QoQ) basis i.e. in Q4FY21. It was over 9 per cent down from Rs 35.66-lakh crore in Q1FY20.

While, the YoY estimates may look satisfactory, the problem lies with the quarter-on-quarter comparisons as the April-June Quarter in 2020-21 was unforeseen and could be safely assumed to be the lowest ebb. Services related to electricity and other utility services including non-contact services were the outlier during this period i.e. April-June 2021 as the remaining six industries posted double-digit quarter-on-quarter contractions.

Meanwhile, on the expenditures front, private consumption contracted by 17.4 per cent from the preceding three months though we see an year-on-year growth of 19.3 per cent.

Most economists have been stressing on the need of government consumption and spending to shore-up the economy and the government to its credit has even down that to some extent. But, even that that has borne the brunt. It has contracted 4.8 per cent from a year earlier and 7.6 per cent from the previous quarter.

India has benefitted from the improved vaccination drive in the developed world along with the global meltdown against China as exports gained. Specific sectors in manufacturing have benefitted and the reliance on Chinese exports have also come down. We have seen several months of expansion in Manufacturing Purchasing Managers’ Index from IHS Markit, even the expansion rate has varied on the month-on-month basis. The sector witnessed back-to-back month of increase in production in August, albeit at a slower pace than in July.

In India fuel, continues to remain a sore point along with commodities which have seen a spike – especially the metals. Sectors like automobile, aviation, tourism and travel which are big employers continue to face difficulties.

With the talks, of third wave doing the rounds, danger of restriction are looming at a time when the country is opening up.

Agriculture was a great saviour during the first wave. This year’s monsoon has not been kind so far. One could see problems in this regard as well.

There are great challenges ahead and the country must brace it up for them.

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