Low base drives up India's GDP growth to record 20.1% in Q1FY22

Growth yet to get back to pre-covid level, CEA sees it happening next year

India’s economy grew by a record 20.1 per cent in the first quarter of the current fiscal year, which, however, gives little cause for cheer because such expansion was on a massive contraction of 24.4 per cent in the corresponding three months of the previous fiscal year. The growth also hides the disruption caused by the second pandemic wave. GDP was still 9.2 per cent lower than in the first quarter of 2019-20, which is in the pre-pandemic period.

Besides, growth during April-June FY22 was 16.9 per cent lower than in the previous quarter, Q4 of FY21, a measure that is one of the most used in other countries. The statistical department conceded this point and said in a statement: “The growth rates in (Q1), 2021-22 in some cases are unduly high due to the low base.”

India was slightly behind the UK in terms of economic growth in this period. The latter’s economy rose 22.2 per cent on an annualised basis. Quarter on quarter, the UK economy grew by 4.8 per cent.

However, the size of the economy (GDP at current prices) was higher by 2.4 per cent during the first three months of FY22 against the same period of FY20. It grew 31.7 per cent on a fall of 22.3 per cent in April-June 2020-21. This could be due to higher collection in goods and services tax this time. The finance ministry said the GDP data indicated economic recovery.

“India’s economic growth would reach the pre-pandemic levels by next year,” Chief Economic Advisor Krishnamurthy Subramanian said.

Independent experts are not so optimistic. Former chief statistician Pronab Sen said the coming quarters might not be as robust as believed.

“The government has made big announcements on spending, but they are not showing up in the numbers,” he said.

All segments except agriculture and allied activities and electricity and related activities contracted compared to the first three months of 2019-20 or the pre-Covid level. For instance, despite a massive surge of 49.6 per cent in the first quarter of this fiscal year, manufacturing (part of industry) was 4.2 per cent down against the same period of FY20.

Construction jumped by 68.3 per cent on the base of a 49.5 per cent decline in the first three months of 2020-21. However, it was still down by close to 15 per cent against the first quarter of FY20.

The badly hammered trade, hotels, transport sector saw a 34.3 per cent surge this time against a 48.1 per cent contraction last time. The segment fell 30.22 per cent compared to the first three months of 2019-20.

Key indicators

• Private final consumption expenditure, denoting demand, grows 19.3% in Q1FY22 on a low base of 26.2% contraction a year ago
• Gross fixed capital formation, which shows investments, rises 55.3%, as against a record 46.6% decline in Q1FY21
• Govt final consumption expenditure decl­ines 4.8%, as against 12.7% growth a year ago

Similarly, financial, real estate and professional services grew 3.7 per cent in April-June this time, but they were down 1.5 per cent compared to the first three months of FY20.

On the demand side, investment has still not picked up to pre-Covid level. Though gross fixed capital formation rose by 55.3 per cent in Q1 of the current fiscal year on a record 46.6 per cent decline a year ago, it was over 17 per cent less than in April-June 2019-20.

Sen said: “The recovery we have seen is not due to the government but to the private sector. Private investment may taper off in the coming months.”

Private final consumption expenditure, denoting demand, was up 19.3 per cent in Q1 of FY22 on a low base of a 26.2 per cent contraction. However, it was still close to 12 per cent less than Q1 of FY20

Government final consumption expenditure declined 4.8 per cent in Q1 of FY22 on 12.7 per cent growth during the same period of the previous year. It was over 7 per cent higher than in the first quarter of FY20.

Sunil Kumar Sinha, principal economist at India Ratings, said economic recovery would continue to need both fiscal and monetary policy support in the near term.