The official data set to be released on Tuesday is likely to show India’s gross domestic product (GDP) grew at a record pace in the first quarter of fiscal year 22. If GDP for the June quarter is in line with expectations, this would be the best quarterly growth since this data was collected.
A recent poll of economists suggests India’s GDP grew around 20 percent in the June quarter, much higher than that 1.6 percent growth recorded in the fourth quarter of FY21 (January-March quarter).
A broader look at other polls and predictions suggests India’s GDP will grow 18-22 percent in the first quarter of fiscal 22. But how did the Indian economy grow so healthy in the first quarter despite the deadly second wave of the Covid-19 pandemic?
Reading | India’s GDP is likely to reach a record high in the June quarter. Here’s why
For those who are wondering, it is due to a low base effect. Simply put, growth in the first quarter of FY22 will be higher than in the first quarter of FY21, when India’s GDP shrinks by over 24 percent.
The reason why GDP growth would reach a record high in Q1FY22 is due to a record decline of 24.4 percent in the same quarter of the previous year.
GROWTH OR ILLUSION?
The rating agency ICRA said a few days ago that India’s GDP is expected to grow at a “deceptively high” rate of 20 percent in the April-June quarter.
“The expected double-digit year-on-year expansion for Q1GY22 is deceptively high as it benefits excessively from the shrinking base last year,” said ICRA chief economist Aditi Nayar.
“We forecast that gross value added and GDP in Q1FY22 will have each shrunk by around 9 percent compared to the pre-COVID level of Q1FY20, which underscores the noticeable plight of economic players in the less formal and contact-intensive sectors,” she added.
The rating agency described GDP growth in the first quarter as deceptive, as there is still a long way to go before the Indian economy has fully recovered. While 20 percent GDP growth seems like a fantastic rebound, it is only due to the sharp decline in FY21.
OPPORTUNITIES TO IDENTIFY GROWTH IN FY22
Some economists suggest that the official first quarter GDP growth percentage would be just an illusion due to the low base effect. In fact, quarterly GDP growth will be high year round due to dismal growth in all four quarters of FY21.
This means that it would be difficult to determine actual growth from this year’s quarterly GDP numbers, which would remain unusually high due to the small base effect.
In such a scenario, economic indicators such as consumer demand, investment, exports, manufacturing data, factory production, and core sector growth could provide a clearer picture.
To get a better idea of the performance of individual sectors, it is ideal to track Gross Value Added (GVA), an economic productivity metric that measures the contribution of different sectors and regions.
Also read | India’s GDP growth turns positive, but experts warn against celebrating 0.4% growth
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