GDP growth 20.1% in Q1 after Covid slump

NEW DELHI: India’s GDP grew at 20.1% in the quarter ending June — in line with expectations — although the high number is the result, not of a V-shaped recovery in the economy, but a favourable base effect. Compared to the last quarter of 2020-21, the country’s GDP actually contracted by 16.9%, although this can be attributed to the bruising second wave of the pandemic in April and May. And compared to the first quarter of 2019-20, it contracted 9.2%.

The growth was largely the result of a 68-day long nationwide lockdown imposed on March 25, 2020, that led to an unprecedented contraction of 24.4% in GDP. Indeed, economic activity did not regain pre-pandemic levels (in the June 2019 quarter) in the first quarter of the current fiscal year.

RBI’S Monetary Policy Committee (MPC) projected a growth rate of 21.3% and a Bloomberg poll of 45 economists, 21% for the quarter. Gross Value Added (GVA), which captures the actual production (GDP numbers also include taxes) grew at 18.8%, again lower than a Bloomberg forecast of 19.6%.

“The fact is that the latest GDP numbers show a large sequential contraction and, when compared to June 2019 levels, show the enormity of the economic challenge. Even these numbers could see significant downward revisions as there might have been an overestimation of informal sector activity in these estimates,” said Himanshu, associate professor of economics at Jawaharlal Nehru University.

However, chief economic advisor Krishnamurthy V Subramanian chose to focus only on the growth (and not the base effect) and said strong fiscal measures announced in the past year-andhalf, and the pace of India’s vaccination drive have helped faster economic recovery. The growth number “reaffirms the government’s prediction of an imminent V-shaped recovery made last year in August,” he said.

Centres spending numbers from the Controller General of Accounts, which works under the ministry of finance, show that capital expenditure of the government was ₹1.11 lakh crore in the quarter ending June compared to ₹88,273 crores in the same period last year.

The capex momentum seems to have slowed down in the month of July (the latest available numbers), with the government spending ₹16,932 crore in July.