India's GDP quarterly is actual at 20.1% comes as a pleasant surprise

Mumbai The first quarter growth of GDP in the current year at 20.1 per cent comes as a pleasant surprise and is quite close to the growth estimate put out by the RBI.

The sharp rise in Q1 GDP data can be attributed to a low base last year. In the April-June quarter of 2020, the economy contracted 24.4 per cent due to the Covid-19 lockdowns. The economy grew by 1.6 percent for Q4 of FY21 after showing contraction for the first two quarters and turning slightly positive in Q3.

Reacting on it, Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, said, "The GDP figures for the first quarter came in marginally weaker than our expectations. However, economic activity has been reviving since July and has picked up momentum. As vaccination pace picks up, we expect the momentum to pick-up further, although remain wary on the evolution of delta variant cases."

Brickwork's own estimate was way too lower, and it appears that the disruptions caused by the second wave were not as severe as we had presumed. In particular, sharp turnarounds in the growth of GVA in manufacturing at 49.6 per cent and more importantly in Construction at 68.3 per cent show significant revival in these sectors and their resilience in withstanding the restrictions posed by the second wave of the pandemic.

"Even the contact intensive sector like trade, hotels transport etc. has shown appreciable resilience in recording the growth of 34.3 per cent. The industry sector has shown a growth of 46.1 per cent whereas, the service sector, still has a lot to pick up as it recorded a growth of just 11.4 per cent. The growth of public administration.

Defence and other services, however, has been muted at 5.8 per cent and this is a clear indication that the government has been far too cautious in increasing its expenditures to contain the fiscal deficit," said M Govinda Rao, Chief Economic Advisor, Brickwork Ratings.

The GDP growth for Q1 22 at 20.10 per cen is well in line with the estimates, and it gives comfort that the economic revival process is intact. But the recovery is not that strong considering the fact that the contraction was deeper.

"While agriculture and manufacturing continue to contribute to the recovery, construction showed the highest rise among the sectors, 68.30 per cent, which was most affected by the disruption due to the pandemic. While the private as well as government consumption numbers remain more or less at the same levels as before with no significant changes as such, the need to give further push to consumption cannot be overemphasized. The policy accompaniment by both the central bank and the government needs to be continued especially in the light of relatively higher price level, and no pick up in credit growth," Dr Joseph Thomas, Head of Researc-Emkay Wealth Management said.

While the headline growth was close to the forecast, the internals were not. Industrial sector grew faster than expected, while services sector, especially trade, transport & hotels, lagged.

From expenditure approach, private consumption grew faster than expected, while investments were broadly in line. Within investments, while household and states' capex growth weakened last quarter, corporate and center's capex grew faster.

"Overall, there were no major surprises from the policy perspective. Focus will shift to the recovery in July and coming months. With lower base effect, we expect real GDP growth to weaken towards 7-8 per cent in 2QFY22. Overall, we maintain our forecast of 9 per cent growth in the full-year FY22," said Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services.

The sharp growth in Q1 GDP is mainly because of the very low base of last year, when the economy was under a national lockdown. On a sequential basis, most parameters of GDP have fallen in Q1 FY22, due to the adverse impact of the second wave of the pandemic on the economy.

According to Rajani Sinha, Chief Economist and National Director - Research, Knight Frank India, "However, the adverse impact of the second wave of the pandemic on Q1 FY22 GDP is relatively muted when compared to the impact of first wave and this is also getting reflected by other high frequency economic indicators."

India's GDP growth rose to the fastest pace on record at 20.1 per cent YoY in Q1 FY22 from 1.6% in Q4 FY21 although on expected lines supported by the highly favourable statistical base of the previous year. However, the onslaught of the second Covid wave during Q1 FY22 lead GDP growth to contract sequentially by 16.9 per cent over the Jan-Mar'21 quarter, after expanding for three consecutive quarters.

Notably, the decline in the sequential print has been nearly half of what was seen in Q1 FY21 as the lockdown restrictions during the second wave were less severe and more localized in nature compared to the complete nationwide lockdown during the first Covid wave.

"What has also been better than our expectations has been the performance of the agriculture sector vis-à-vis that in Q1FY21 with a growth of 4.5 per cent (3.5 per cent) and also the contact intensive services as reflected partly by the GVA from trade, hotels, transport, and communication services which surprised on the upside by the YoY growth of 34.3 per cent," says Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research comments on GDP data released

today.

As regards GVA, it expanded by 18.8% YoY in Q1 FY2 but sequentially it recorded a double-digit contraction of 13.3 per cent given the disruption in Apr-May'21 due to the lockdown restrictions. It is interesting to note that within services, sector financial services, real estate, and professional services recorded an expansion of 18.8 per cent QoQ in Q1 FY22.