Deep Dive on GDP Growth for FY 21-22

Anindya Sengupta

The Ministry of Statistics & Programme Implementation ( MOSPI) published the growth numbers for quarter 2 of financial year (FY) 2021-22. The GDP growth showed a record increase of 8.4% growth and the GVA showed a growth of 8.5% when compared to the same quarter previous financial year, i.e. quarter 2, FY20-21.

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

One needs to remember that quarter 2, FY 20-21 actually witnessed a significant 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 2 of FY 21-22, is now at the pre pandemic levels achieved in quarter 2 of FY 2019-20. Thus it can be said that the GDP and GVA growth levels have at least reached the pre pandemic level after quarter 2.

It must be noted that with the announcement of the Q2 numbers, we now have a view of the GDP numbers for a Half yearly period of the Financial year, 21-22. Let us compare this with the half yearly numbers for the pre pandemic period ( FY 19-20) to assess the recovery journey of the economy after the impact of pandemic.

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

Both the GDP and the GVA numbers show a decline of around 4% in FY, 21-22, when compared against the half yearly numbers of pre pandemic period. So it can be said that while there are signs of journey towards recovery of the economy, yet it has a lot to catch up to be at the pre pandemic level and it is too early to say the economy has recovered.

The two major components of GDP which contribute over eighty five percent of GDP is the consumption expenditure and private investments. Both of these two components are still significantly lower than the pre pandemic level when we compare the Half yearly numbers for FY 21-22 with FY 19-20.

Increase in consumption expenditure will mean higher demand in the economy and with more demand, there will be more investments for catering to that demand. The increased investment will lead to further increase in consumption expenditure as with increased investments people will have more work and more money in pocket to spend. This is the growth cycle.

Now increase in consumption expenditure can happen if the people intensive sectors go back quickly to the pre pandemic level and show steady growth. Growth in people intensive sectors is hence utmost crucial to drive the economy back to the growth cycle.

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

The most people intensive sector is agriculture followed by manufacturing and construction. Trade, Hotel and Transport and Financial and Real estate services sectors are also hubs of semi and unskilled workers. If one compares the half yearly growth numbers of these sectors with the pre pandemic level, it can be seen that apart from agriculture, rest of the sectors don’t show any positive growth. Manufacturing and Financial services sector are close to the pre pandemic levels. The construction and the trade, hotel and transport sector still are significantly lower than the pre pandemic levels. Agriculture, as we all know is seasonal in nature and majority working in that sector work in construction and manufacturing sector for rest of time.

Thus it can be said that there is still some path to travel for the people intensive sectors to reach the pre pandemic level. Once it reaches that level and shows steady growth then only the economy will start working in full force. Till then it is the journey to the path of recovery.

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