GDP Update – Q1FY22

The GDP growth number for Q1FY22 was reported at 20.1% as compared to contraction of 24.4% in the first quarter of FY21. The GVA number for Q1FY22 came in at 18.8% as compared to -22.4% during the year ago comparable period. The record growth rates have largely been a function of a low base effect. The strict lockdown imposed a year ago in the wake of the pandemic had led to a disruption of regular economic activities and resulted in a washed-out quarter, from a GDP growth perspective. The current quarter under purview too was impacted by localised lockdowns and restrictions to control the second wave of the pandemic but the effects are not explicitly visible in the growth numbers due to the base effect.

While the pandemic induced restrictions were not as severe this time around and more localised in nature, it led to a slowdown in the growth momentum. If quarter-on-quarter sequential growth is considered, the effects of the second wave come to the fore. The GVA for Q1FY22 has contracted by 13% as compared to the last quarter (Q4FY21). The slowdown in momentum has led to economic activity, when gauged through GDP numbers, not yet crossing the levels recorded during the pre-pandemic period. The GDP number for Q1FY22 is lower by 9.2% as compared to Q1FY20 and the GVA is still lower by 7.8%.
As has been the case for the last 8 quarters preceding the current one, agricultural activities reported robust growth and has been a key support to the headline GVA numbers. The growth for agriculture and allied activities was reported at 4.5% for Q1FY22. The industrial activity growth rate was reported at 46.1% in the latest quarter as compared to 7.9% in the preceding one. Within industry, the growth for mining (18.6%) reverted to positive growth after an extended period in the contractionary zone. The other components of industry viz, manufacturing (49.6%), electricity (14.3%) and construction (68.3%) reported healthy growth rates. The numbers for electricity have recovered to the pre-pandemic levels. The growth rates for services sector too got the support from base effect but the growth was still subdued due to larger impact of lockdowns on this segment.

The services sector reported a growth of 11.4% as compared to 1.5% in the preceding quarter. The sub-components within the services sector reported divergent growth rates depending on the nature of services offered. While trade, hotel and transportation (34.3%) reported healthy growth, the finance and real estate services (3.7%) reported relatively weaker growth. Public administration, defence and other services, partly representative of government expenditure remained weak at 5.8%, indicative of a lower government expenditure.

On the expenditure front, private consumption expenditure maintained its share of the GDP at around 55% but the growth momentum slowed down. On a year-on-year comparison, the private consumption expenditure reported a growth of 19.3%; whereas when compared with Q1FY20 (pre-pandemic level) the numbers are still lower by 11.9%. This is largely attributable to the effects of the second wave. The government consumption expenditure contracted by 4.8% in Q1FY22 as compared to growth of 28.3% in the preceding quarter. The share of government consumption expenditure in total GDP contracted from 16.4% in Q4FY21 to 13% in Q1FY22. The gross fixed capital formation reported a growth of 31.6% for Q1FY22 but the absolute numbers for this segment too remained below the
pre-pandemic levels. If we look through the robust headline GDP growth rates supported by the low base effect, a more detailed analysis indicates that the economy is yet to recover to pre-pandemic levels. The recovery of
economic activities would continue to require policy support, both fiscal and monetary. Even as the economy is yet to recover from the second wave, the risks of a third wave have started emerging and will be a key risk to growth especially if there is to be a new variant of the virus. Apart from the policy support, the critical factor that may help revert to pre-pandemic levels of activity and further strengthen from there would be the pace of vaccination. As a large part of the population is vaccinated it may limit the need to impose further lockdowns and help lifting-up of those already in place. This factor gains further import especially in the wake of upcoming festive season. The
government expenditure has remained weak in the first quarter of the current fiscal, any improvement on this front too will be growth supportive going ahead.


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