Q1 FY22 GDP Growth at 20.1%: View of Economists

The Ministry of Statistics and Programme Implementation (MoSPI) has estimated the April-June quarter Gross Domestic Product (GDP) growth at 20.1 per cent as compared to the same quarter last year. The growth in Q1 FY22 has been measured against April-June 2020 quarter, a period when India was majorly hit by the first coronavirus wave and the economy shrunk 24.4 per cent.

"GDP at constant (2011-12) prices in Q1FY22 is estimated at Rs 32.38 lakh crore against Rs 26.95 lakh crore in Q1 FY21, showing a growth of 20.1 per cent compared to contraction of 24.4 percent in Q1 FY21," the ministry said.

Quarterly GVA (basic price) at constant (2011-12) prices for Q1 FY22 is estimated at Rs 30.48 lakh crore against Rs 25.66 lakh crore in Q1 FY21, thereby growing 18.8 per cent, the ministry added.

GDP at current prices in Q1 was Rs 51.23 lakh crore against Rs 38.89 lakh crore in Q1FY21, recording 31.7 per cent growth compared to contraction of 22.3 percent in Q1 FY21. GVA (basic price) at current prices stood 46.20 lakh crore in Q1 FY22 vs Rs 36.53 lakh crore in Q1FY21, showing 26.5 per cent growth, the ministry said.

The GDP on a sequential basis, however, is lower as the fierce second Covid-19 wave ravaged India’s economy. Various financial institutions, including the Reserve Bank of India, had estimated the first-quarter GDP to grow at a record double-digit in the April-June 2021 quarter.

Other assessments of Q1 growth

The Reserve Bank of India's GDP growth projection for the April-June quarter stood at 21.4 per cent. SBI Research, in its latest Ecowrap report, had said that the GDP would grow at around 18.5 per cent with an upward bias in the first quarter of the current financial year. It expected the gross value added (GVA) to be at 15 per cent in Q1 FY22.

A Reuters survey of 41 economists projected Q1 GDP growth at 20.0 per cent on a YoY basis on improved manufacturing despite a devastating second Covid-19 wave in the first quarter of the financial year.

Perception of economists

Chief Economic Adviser (CEA) K Subramanian says India's macroeconomic fundamentals are much stronger. "Q1 GDP reaffirms the V-shaped recovery of the Indian economy. India's reforms will have seminal impact on economic recovery gathering momentum," he added.

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said the first quarter growth of GDP in the current year at 20.1% comes as a pleasant surprise and is quite close to the growth estimate put out by the RBI. "In particular, sharp turnarounds in the growth of GVA in manufacturing at 49.6% and more importantly in Construction at 68.3% show significant revival in these sectors and their resilience in withstanding the restrictions posed by the second wave of the pandemic," said Rao, adding the revival of the economy will continue at a faster pace in the coming quarters.

Mohit Ralhan, Managing Partner and Chief Investment Office, TIW PE, said the 49.6% growth in manufacturing is especially encouraging and indicates to the structural strengthening of the Indian economy. "India has also significantly ramped up its vaccination drive and it is set to accelerate further," said Ralhan. 

India's growth rebound in the first quarter of this fiscal will be the foundation of sustained expansion in successive quarters, Niti Aayog Vice Chairman Rajiv Kumar said, adding that the country's GDP growth estimates may get revised upwards in the coming weeks. "Economic growth in the April- June quarter of 2021-22 (Q1) has come in at 20.1%, which is at the upper end of all estimates, making the apparent consensus redundant. This rebound in Q1 will be the foundation of sustained growth in successive quarters," Kumar tweeted.

The Reserve Bank of India (RBI) has lowered the country's growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier, while the World Bank  has estimated India's GDP growth at 8.3 per cent in 2021.

Three takeaways

According to the Hindustan Times, “there are  three key takeaways from these figures.

“One, to revive aggregate demand, the fiscal arm of policymaking needs to get its act together. Not only is the government not spending enough, but it is also squeezing demand by a high indirect tax burden on petroleum products. While those who bat for the current, conservative stance cite the need to keep the fiscal deficit in check, it cannot come at the cost of sacrificing growth and, more importantly, well-being of citizens. A fiscal boost needs to be timed with the festive season. Two, both the GDP numbers and this newspaper’s analysis of corporate results for the June quarter point towards the “have-nots” (informal sector workers and smaller sized firms) suffering disproportionately due to the pandemic. If left unchecked, this will lead to long-term destruction of mass incomes. To address this, policymakers must consider institutionalising some kind of a progressive mechanism – which helps the smaller players in the economy.

“Three, it is important that policy attention is not swayed by the ongoing bull run in the equity markets. Both Sensex and Nifty reached new highs on August 31. With the Federal Reserve ruling out rake hikes this year, the party might continue in the foreseeable future. Buoyant stock markets are good for investor confidence, foreign exchange inflows and wealth creation, but they do very little to boost the macro economy. Also, investments in the macro economy are much more likely to bear fruits in the long run than stock markets, which at the moment, are not just overvalued but also enjoying external tailwinds, which will eventually ebb. And finally, India must maintain the current momentum in its vaccination drive — which is the key to preventing a third wave and restoring economic normalcy.”

India’s growth story  intact

According to Vrishti Beniwal and Cynthia Li, Bloomberg however, the economic toll from  the second wave of Covid-19, doesn’t appear to be as bad as feared, with analysts still seeing the nation pulling off the world’s fastest growth this year.

A better-than-expected manufacturing performance and a milder hit to services, combined with a robust pace of vaccinations, have helped keep the annual growth outlook for the economy steady at 9.2%, according to a Bloomberg survey. That pace is the same seen in a poll last month and the quickest among major economies.

“The economic damage appears to be less than previously expected,” said Rahul Bajoria, chief India economist at Barclays Bank Plc. “With the second outbreak brought under control, a rapid recovery appears underway,” he said.

In recent months, India’s annual growth forecast has gone from being upgraded to double digits to slashed by the steepest rate amid uncertainty about Covid’s  devastation on the economy. But recent data from high-frequency indicators have shown the impact of pandemic restrictions were less severe than last year, with demand staying resilient.

Factory managers in India saw a surge in activity in July, reflecting a pick up in new orders, while a similar survey of services’ purchasing managers showed the sector was inching back toward expansion. Exports, which account for nearly a fifth of the economy, have been growing for the past eight months signaling strong global demand.

“The recovery from the second wave has been faster with activity indicators recovering lost ground in less than three months compared to 10 months in the first wave,” said Gaura Sen Gupta, an economist with IDFC First Bank. “High frequency growth indicators show that the economic cost of the lockdowns was lower.”

Economy set for faster growth: Ashima Goyal

Noted economist Ashima Goyal - member of the Monetary Policy Committee (MPC) of the Reserve Bank - has confidence in India's economy stating that the economy is ready for faster recovery from pandemic lows.  "Despite the Covid-19 severe shock, India's macroeconomy is more healthy and ready for faster growth than it has been for a long time. That recovery from both the first and second waves was faster than expected points towards inherent strengths of the economy," she said in an interview prior to the release of above figures.

Goyal said that although many Indian start-ups are doing well but "we should not, however, expect the private infrastructure investment boom of the 2000s."

"Portfolio inflows into India are not only due to the quantitive easing  of rich countries' central banks, they are also attracted by India's growth prospects. All emerging markets do not get such inflows," the eminent economist opined.

"India, moreover, has enough reserves to ride out any volatility while ensuring interest rates are aligned to the domestic policy cycle," she said.

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