THE ECONOMY grew at a record pace of 20.1 per cent in April-June 2021 compared with the corresponding period last year, when a national lockdown due to the Covid-19 pandemic had nearly halted all economic activities. The GDP had contracted 24.4 per cent in April-June 2020.
The first quarter’s high growth rate, however, has come despite a brutal second wave of the pandemic which peaked in April-May. In fact, data related to certain high frequency indicators such as power generation, fuel consumption and railway freight for April-May indicated that rebound has been faster after Covid 2.0 than Covid 1.0, said Sunil Kumar Sinha, Principal Economist, India Ratings.
Data released by the National Statistical Office Tuesday, however, shows the economy continues to limp towards recovery. The GDP in absolute terms at Rs 32.38 lakh crore (constant prices) in the first quarter is still 9.2% lower than the GDP in the same period during the pre-Covid year 2019-20.
Pointing to this and the sequential slowdown of 16.9% over the GDP of Rs 38.96 lakh crore in January-March 2021, Aditi Nayar, Chief Economist, ICRA, said, “The sharp YoY expansion in Q1 FY2022 is analytically misleading.”
Amongst sectors, manufacturing and construction imparted a significant push to the economy in April-June, growing 49.63% and 68.3% respectively, over April-June 2020. Services, especially contact-intensive sectors, however, continued to lag. In terms of expenditure, Private Final Consumption Expenditure, a measure of consumer spending, grew 19.34%, and Gross Fixed Capital Formation, a measure of private investment, jumped 55.26 per cent.
The sharp increases were largely due to the low base of the first quarter of 2020-21. Both manufacturing and construction sectors have still some distance to cover before reaching the levels of the latest pre-Covid year of 2019-20. Same for consumer spending and private investment — lower by 11.9% and 17.09%, respectively, compared with the first quarter of 2019-20.
The GDP data shows that sectors including ‘agriculture, forestry and fishing’ and ‘electricity, gas, water supply and other utility services’ are above the levels of the pre-Covid year of 2019-20. Agriculture and electricity sectors have grown 8.21% and 3%, respectively, compared with April-June 2019-20.
The high GDP growth numbers are mainly on account of the base effect. The level of the GDP in 1QFY22 is still lower than the level recorded in 1QFY20. However, the rebound after the second wave has been faster in some sectors. The recovery is likely to deepen with further easing of curbs and faster vaccination.
Economists said with the GDP print coming in below the RBI projection of 21.4% for April-June, the central bank is expected to maintain status quo on key policy rates, and a full economic recovery would require the support of both fiscal and monetary policies.
Government final consumption expenditure was recorded at Rs 4.21 lakh crore in April-June, lower than Rs 4.42 lakh crore in the year-ago period but higher than Rs 3.92 lakh crore in April-June 2019-20.
GVA — which is GDP minus net product taxes, and reflects growth in supply — grew 18.8 per cent in April-June as against a contraction of 22.4 per cent in the previous year. GDP in nominal terms, which factors in inflation, grew by 31.7 per cent in April-June as against the 22.3% contraction last year.
Chief Economic Adviser KV Subramanian said the GDP data for the first quarter “reaffirms the government’s prediction of an imminent V-shaped recovery made last year” and that the country’s macroeconomic fundamentals “are much stronger”.
Some others differed. “The spectacular headline number cannot be interpreted as a V-shaped recovery. The fact that the economy has still not recovered to the 2019-20 level, which was in itself seen as a disastrous year for growth, is not good news. However, in view of the economic outcomes in the first quarter this year being impacted by the second wave of the Covid pandemic, it is the second quarter numbers that would be the real test of the shape of the recovery,” said Alok Sheel, RBI Chair Professor in Macroeconomics at Indian Council for Research in International Economic Relations (ICRIER).
He pointed to the sharp fall of about 4 percentage points in the share of consumption in GDP, led by government consumption. “This reflects the fact that fiscal policy had hardly any role to play in the macroeconomic response to the pandemic by putting income in the hands of those who lost their means of livelihood. The share of foreign trade and investment has increased, but except for exports these are still below the 2019-20 level,” Sheel said.
ICRA’s Nayar said that going forward, high frequency indicators point to a deepening recovery in the second quarter, driven by the easing of state-wise restrictions and rising confidence on the back of widening vaccination coverage.