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Riding consumption and farm uptick, economy grows at 8.4% in second quarter

In the last quarter (April-June), the economy saw record growth of 20.1 per cent compared with the corresponding period last year, when a national lockdown due to the Covid-19 pandemic had nearly halted all economic activities.

By: ENS Economic Bureau | New Delhi |
Updated: December 1, 2021 7:13:30 am
A labourer works at a flyover construction site in Jammu, Tuesday, Nov. 30, 2021. (AP Photo/Channi Anand)

The Indian economy clocked a healthy growth rate of 8.4 per cent in July-September, the second quarter of financial year 2021-22, primarily on the back of a low base but aided by increased vaccination and an uptick in agriculture, public administration and defence services sectors, data released Tuesday by the National Statistical Office showed.

The RBI had projected a growth rate of 7.9 per cent in Q2 this year.

In absolute terms, the GDP at constant prices at Rs 35.73 lakh crore was 0.33 per cent higher than the pre-pandemic levels of Q2, 2019-20, indicating the economy has recovered the ground lost due to Covid-19. Barring construction, all industry segments posted a higher output level than Q2, 2019-20.

The Q2 data showed improved traction for high-contact activities such as restaurant and hotels which pushed up the services sector, and improvement in private consumption, as reflected in the 8.64 per cent growth in Private Final Consumption Expenditure. The 1.5 per cent rise in Gross Fixed Capital Formation – an indicator of investments – over July-September in the pre-pandemic year 2019-20 was also a silver lining.

While higher vaccine coverage and fuel duty cuts are likely to boost confidence and spur demand, economists flagged concerns over a durable recovery once the base effect starts waning in the third quarter onward, rising higher prices, and uncertainty due the new Covid variant Omicron hurting global recovery.

Chief Economic Adviser K V Subramanian, however, said India is expected to log double-digit growth in 2021-22, aided by rising demand and a robust banking sector. He said seminal second-generation reforms would help the country grow over 7 per cent this decade.

Source: NSO, MoSPI

The economy had posted a contraction of 7.4 per cent in July-September a year ago, when it had entered technical recession after contracting for two consecutive quarters. It had jumped 20.1 per cent in April-June this year against a 24.4 per cent contraction in Q1, 2020-21.

Government final consumption expenditure in July-September this year at Rs 3.61 lakh crore was 8.73 per cent higher than Rs 3.32 lakh crore in Q2 last year but was significantly lower than Rs 4.34 lakh crore in Q2 2019-20. While private consumption, at Rs 19.48 lakh crore was 8.64 per cent higher than Rs 17.93 lakh crore in Q2 last year, it still did not reach the pre-pandemic level of Rs 20.19 lakh crore in Q2 2019-20.

Gross Fixed Capital Formation, an indicator of investments, at Rs 11.42 lakh crore was higher compared with Rs 11.25 lakh crore in Q2, 2019-20 (pre-pandemic year), and Rs 10.29 lakh crore in Q2, 2020-21.

A sharp jump was seen in valuables, which includes assets such as works of art, precious metals, and jewellery – those with a store value, also contributed to a higher growth rate. It stood at Rs 1.19 lakh crore in July-September compared with Rs 42,253 crore in Q2 last year and Rs 44,242 crore in Q2 2019-20.

At current prices or in nominal terms, the GDP in absolute terms increased due to higher wholesale price inflation to Rs 55.54 lakh crore in July-September, compared with the pre-Covid level of Rs 49.42 lakh crore.

“While the Q2 FY2022 absolute level of real GDP reverted mildly above the pre-Covid level of Q2 FY2020, the disaggregated data for Q2 FY2022 is far from convincing, with considerable lags in private and government consumption expenditure being absorbed by a sharp rise in valuables relative to the pre-Covid level of Q2 FY2020. The 1.5% rise in gross fixed capital formation in Q2 FY2022 relative to Q2 FY2020 appears to be the lone silver lining,” Aditi Nayar, Chief Economist, ICRA, said.

When compared with pre-Covid levels of 2019-20, all sectors recorded a higher gross value added (GVA) output except construction, ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’, and ‘Financial, Real Estate & Professional Services’. The GVA — it is GDP minus net product taxes and reflects growth in supply — grew 8.5 per cent in July-September against a contraction of 7.3 per cent in the Q2, 2020-21. The GDP in nominal terms, which factors in inflation, grew by 17.5 per cent in July-September as against the 4.4 per cent contraction last year.

The manufacturing sector posted a growth of 5.5 per cent in July-September as against the 1.5 per cent contraction in the same period last year. The construction sector too grew by 7.5 per cent as against the 7.2 per cent contraction last year. Agricultural growth increased to 4.5 per cent in the July-September quarter from 3.5 per cent last year, while electricity, gas, water supply, and other utility services grew 8.9 per cent as against 2.3 per cent last year. In the services sector, the trade, hotels, transport sector grew at 8.2 per cent in July-September as against a sharp 16.1 per cent contraction last year.

Going ahead, the vaccination rate is seen as supportive even as inflationary concerns loom over GDP growth, posing a challenge for monetary policy going ahead.

“As things stand now, Ind-Ra believes Indian economy is on a path of recovery suitably added by the progress achieved on the vaccination front…yet Ind-Ra believes economic recovery will require both fiscal and monetary policy support in the near term to ensure that recovery continues despite the threat posed by the new Covid-19 variant Omicron,” Sunil Kumar Sinha, Principal Economist, India Ratings and Research said.

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank, said, “Overall, GDP growth looks set for an 8-9% range in FY22. Several high frequency indicators have recorded decent uptick in recent months. Nevertheless, indices such as Consumer Confidence are still 25-30% lower than their pre-Covid levels. Despite inflationary concerns in recent months, one expects policymakers to stay broadly growth-supportive, especially given the fresh concerns triggered by the Omicron variant of the coronavirus. The uptick in exports in Q2 was encouraging. However, going ahead this will remain contingent upon global recovery.”

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