Q1 GDP growth of 20.1% reaffirms imminent V-shaped recovery forecast, says CEA

As the Indian economy grew by 20.1 percent on a low base in the first quarter of the financial year 2021-22, Chief Economic Advisor Krishnamurthy Subramanian on Tuesday said the figures are indicative of economic recovery.

“Q1 GDP reaffirms the government’s prediction of an imminent V-shaped recovery,” Subramanian said, adding that India’s economic fundamentals are much better now and it is expected that the economy will be in a very good position to withstand taper tantrum.

He, however, said, last years’ growth decline has nothing to do with the economic fundamentals. Due to the national lockdown last year, GDP had contracted by nearly 24 percent.

His remarks came as the National Statistical Office (NSO) released the GDP print for the first quarter of FY22, which is in line with expectations.

According to the NSO data, gross value added (GVA) growth in the manufacturing sector accelerated to 49.6 percent in the first quarter of 2021-22, compared to a contraction of 36 percent a year ago. Farm sector GVA growth was up at 4.5 percent, compared to 3.5 percent earlier.

Construction sector GVA grew by 68.3 percent compared to 49.5 percent contraction earlier. The mining sector grew by 18.6 percent, as against a contraction of 17.2 percent a year ago. Electricity, gas, water supply and other utility services segment grew by 14.3 percent against a 9.9 percent contraction a year ago.

Similarly, trade, hotel, transport, communication, and services related to broadcasting grew by 34.3 percent compared to 48.1 percent contraction earlier. Financial, real estate, and professional services grew by 3.7 percent in Q1 FY22 compared to a contraction of 5 percent.

While there were partial lockdowns across states due to the second coronavirus wave, the CEA said its economic impact was not as large. It did impact services but not the industry that much, he said.

Subramanian said high-frequency indicators have gone up very sharply and added that gross sales grew the highest and the net profit recorded in the quarter is the highest in over 30 years.

Commenting on banking, he said the sector has developed a cushion to weather bad loans as macro fundamentals are much stronger now. “India will be able to weather tapering of liquidity that is expected,” he said.

Moreover, he claimed that growth this year is expected to be higher than the pre-COVID levels. He also reiterated that India may reach the 11 percent GDP growth target in FY22 as projected in the Economic Survey 2020-21. Subramanian also commented on the impact that the third COVID-19 wave may have on the economy, saying “with the combination of sero prevalence and vaccination the 3rd wave may not be that intense.”