India's GDP growth at 20.1% in Q1 leaves SBI forecast of 18.5% behind

Mumbai: India's GDP grew in double digits and stood at 20.1 per cent in Q1 FY22 as against SBI estimate at 18.5 per cent. GVA increased by 18.8 per cent. Interestingly, we should look at the seasonally adjusted numbers quarter-on-quarter as is the practice globally. Average contraction in Q1 since FY13 comes to -3.6 per cent. For Q1 FY22, the seasonally adjusted Q-o-Q real growth is –13.6 per cent. In Q1FY21 it was –26.7 per cent, says a study by the SBI economists.

Agriculture and allied sectors grew by 4.5 per cent in Q1 FY22 as against 3.5 per cent in Q1 FY21 and 3.1 per cent in preceding quarter. This sector remains unscathed from the pandemic and continues to perform well. Industry, which was the worst affected sector during the pandemic, rebounded sharply in Q1 FY22 (grew by 46.6 per cent) due to 49.6 per cent growth in Manufacturing and 68.3 per cent growth in construction. However, much of the growth is due to the low base in Q1 FY21.

"Services sector exhibited a YoY growth of 11.4 per cent, however, on Q-o-Q basis the sector has contracted by 11.8 per cent. Though, the growth has seen in 'financing, insurance, real estate & bus Services' but 'trade, hotels, transportation' and 'Public administration and Defence' has contracted significantly on Q-o-Q basis," says Soumya Kanti Ghosh, chief economic advisor, SBI group.

On the expenditure side, due to base effects the y-o-y growth in Q1 FY22 private final consumption expenditure has been at a record 19.3 per cent. However, when we look at the Q-o-Q metrics, there is a degrowth of 17.4 per cent. And if we compare with Q1 FY20, the degrowth is 11.9 per cent. Thus, the recovery has not happened as Indian households faced the brunt of second wave in Q1. Another troubling aspect to the consumption story is that the government

expenditure, which grew by 12.7 per cent in real terms in Q1FY21, has displayed degrowth of 4.8 per cent Y-o-Y and -7.6 per cent Q-o-Q.

Government support to consumption expenditure declined despite the second wave. However, its share in GDP remains at an elevated 13 per cent.

Investment demand as gauged by Gross Fixed Capital Formation has shown 55 per cent growth in Q1FY22. But again, base effects are at play and on Q-o-Q basis the degrowth is of 23.6 per cent and 17.1 per cent, if we compare with Q1 FY20. The overall share in GDP has recovered to

31.6 per cent as compared to 24.4 per cent in last year's Q1. With the almost flat new announcements of around Rs 11 trillion reported in FY21 as compared to Rs 10.8 trillion in FY20, FY22 looks optimistic with around Rs 5.6 lakh crore investment announcements made so far in last five months in FY22 (April-Aug), as per Projects Today. What is pertinent to mention is that around 70 per cent of this or Rs 3.84 lakh crore is coming from private sector and around 30 per cent is from Government.

At the granular level, small companies with turnover of up to Rs500 crore, are continuously taking cost cutting measures including cut in wage bill. While analysing results of more than 3,700 listed entities, we saw reduction in employee cost by up to 5 per cent in companies with turnover of up to Rs50 crore as compared to increase in 2-3 per cent for large corporates in Q1FY22 as compared to Q4FY21.

Exports have grown rapidly as global demand has recovered and as commodities have witnessed inflationary pressures. The share has grown to 23.7 per cent in Q1FY22, levels close to FY15. However, volatility remains around commodity prices and any softening can have adverse impact on the share of exports in GDP. Overall net exports are expected to be negative, as imports have also climbed due to improved demand and higher crude oil prices.

Though it is too early to anticipate the FY22 GDP growth estimate, we still believe that this will be in single-digits in FY22 and in the range of 8.5-9.0 per cent. The best thing, however, is that for 2 days in August, vaccination has topped 1 crore including 31 Aug.

Overall, the story is in Q1 FY21, the country exhibited real GDP loss of Rs 8.7 lakh crore (on y-o-y basis) due to nation-wide lockdown. In Q1 FY22, the gain was around Rs 5.4 lakh crore. This indicates that loss of Rs 3.3 lakh crore still needs to be recouped to reach the pre-pandemic level, the report goes on.