Decoding the GDP Growth Numbers for Quarter 1

Anindya Sengupta

The Ministry of Statistics & Programme Implementation ( MOSPI) published the growth numbers for quarter 1 of financial year (FY) 2021-22. The GDP growth showed a record increase of 20.1% growth and the GVA showed a growth of 18.8% when compared to the same quarter previous financial year, i.e. quarter 1, FY20-21. Many has been saying that this is a sign of recovery for the economy.

Source: Ministry of Statistics and Programme Implementation, Government of India

One needs to remember that quarter 1, FY 20-21 actually witnessed a record drop in GDP growth given the lockdown induced by the pandemic. So the growth numbers of this financial year are compared with a lower base.

The primary question that has been going around the economists and experts is when do we see a recovery from the recession that was witnessed during the pandemic. One possible answer to this can be that when we reach to the pre pandemic levels of GDP, at least then we can say we are in the path of recovery. The other more stringent definition of recovery can be that when the GDP reaches to the level that it should have reached without pandemic ( with normal year on year growth accounted for), then only we can say that the economy has recovered. Let us for now focus on the first definition of recovery and see whether the economy has at least reached the pandemic level or not.

Source: Ministry of Statistics and Programme Implementation, Government of India

So a true comparison should be with the GDP numbers of FY 19-20 to effectively measure the extent of recovery of the economy. Both the GDP and the GVA levels after quarter 1 of FY 21-22, is significantly lower than that the pre pandemic levels achieved in quarter 1 of FY 2019-20. The GDP of q1, FY 2021-22 is now at 90.7% of the level of GDP achieved in quarter 1 of FY, 2019-20.

It needs to be seen that how has been the recovery of major components of GDP. The major components of GDP are private consumption expenditure and investments ( gross capital formation). Both of them account for over eighty percent of the total GDP.

Source: Ministry of Statistics and Programme Implementation, Government of India

This can be seen that both the consumption and investment levels in Q1 of FY, 2021-22 is significantly lower than that of FY, 2019-20 ( pre pandemic level). One needs to keep this in mind here that the India economy has been witnessing a slowdown in both consumption and investments even in the pre pandemic period, while the consumption still showed a positive growth, the investment actually had seen a significant decline in FY, 2019-20. So in a way the pre pandemic level itself was not a full potential level of the Indian economy.

As has been shown in the above charts, the level of GDP and its components where significantly low in FY 20-21 and hence a true comparison of growth has to be with FY 2019-20 to see how the economy has grown in two years.

Source: Author’s calculation based on data from Ministry of Statistics and Programme Implementation, Government of India

So over the period of two years the Indian economy has seen a negative growth in GDP to the extent of -9.2%. The decline for the two major components ( consumption and investment) is more severe. Thus in comparison with the pre pandemic levels of GDP, the Indian economy is far from recovery. Yes a positive growth of 20.1% is encouraging, but it is not enough to bring the economy into the path of recovery and needs to be looked with the lenses of low base effect.

Source: Author’s calculation based on data from Ministry of Statistics and Programme Implementation, Government of India and https://www.china-briefing.com/news/chinas-gdp-grows-by-12-7-percent-in-h1-202

Over the years, the GDP growth of India has always been compared with that of China and these two had been the fastest growing economy in the pre pandemic era. During the last two years in the same quarter of Apr-June, China witnessed a growth of 3.2% in FY 20-21 and 7.9% in FY 21-22. So in comparison with the pre pandemic level of Apr-June, 2019-20, Chinese economy grew by 11.4%. In the same period the Indian economy actually declined by -9.2%.

So it is still a long way for Indian economy to go to the path of recovery and every aspect of the economy needs to be closely monitored. Efforts needs to be taken to boost both the demand ( consumption ) and investments in the economy.

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