“GDP at Constant (2011-12) prices in Q1 of 2021-22 is estimated at Rs 32.38 lakh crore, as against Rs 26.95 lakh crore in Q1 of 2020-21, showing a growth of 20.1 per cent as compared to contraction of 24.4 per cent in Q1 2020-21,” ministry of statistics and programme implementation said in an official press release.
The jump in GDP numbers is mainly due to a weak base last year and also a rebound in consumer spending during the quarter.
Indian economy witnessed a rebound in spite of the drag caused by the second and more severe wave of Covid-19 that forced the majority of states to reimpose localised lockdowns and stop mobility completely from late April to early June.
However, the impact of such state-wise lockdowns was not as severe as the nationwide lockdown that was imposed last year during the first wave.
This is the fastest quarterly growth witnessed by India since such data began to be released in mid-1990s.
Briefing the media after release of the numbers, chief economic advisor Krishnamurthy Subramanian said that India is poised for stronger growth from structural reforms, govt capex push and rapid vaccination.
“Our macroeconomic fundamentals, whether it’s inflation, current account deficit, forex reserves, and all the others metrics clearly indicate that our fundamentals are very very strong,” he said.
What is meant by ‘low base effect’
One of the major reasons for this phenomenal jump in GDP is the low base effect. That means the base year or month with which the figure is being compared.
For quarterly or annual GDP data, comparison is always made with the same quarter last year or growth over last year’s GDP.
The Q1 GDP growth of 20.1% per cent is, therefore, in comparison to that GDP data recorded in the same quarter last year.
When the pandemic struck in 2020, the government imposed a strict nationwide lockdown to curb the spread of the virus. This had a massive impact on the Q1 GDP growth which slumped by a record 24.4 per cent to Rs 26.95 lakh crore as compared to Rs 35.7 lakh crore reported in Q1 of 2019-20.
As for the period under consideration, the GDP figure stands at Rs 32.38 lakh crore, up 20.1 per cent from Rs 26.95 lakh crore reported in Q1 of 2020-21.
Apart from the low base effect, there are other significant reasons too which suggest a recovery in the economy.
Many sectors like retail, auto sales, farm output, construction and exports have picked up since June.
Power demand rose by 0.1 per cent as compared to the previous week, while the labour participation rate inched up to 40.8 per cent from 40 per cent.
In addition, equity indices surged to record highs with the benchmark BSE sensex breaching the 57,000-mark for first time ever. In all, the 30-share index gained over 4,000 points in the month of August.
Centre’s GST collection has also revived to over Rs 1 lakh crore in July, while the manufacturing index has also shown an uptick.
The International Monetary Fund (IMF) in its July edition of World Economic Outlook has projected India to grow at the fastest pace of 9.5 per cent during the year 2021.
Besides, the Reserve Bank of India (RBI) also forecasted annual growth of 9.5 per cent in the current fiscal year, although it has warned about the possibility of a third wave.
Where do the other countries stand
The low base effect is playing up for other countries too. According to a report by State Bank of India (SBI) economists, the low base effect has resulted in double digit growth in real GDP in most countries.
The United States is the first among G-7 economies to return to a pre-pandemic level of output, leaving behind its European peers that suffered sharper contractions when Covid-19 struck.
According to the OECD’s second quarter GDP data, its 38 members as whole also haven’t reached pre-crisis readings, even as growth for the group accelerated to 1.6 per cent in the period from 0.6 per cent at the start of the year.
What experts say
“June quarter GDP growth was more or less in line with expectations. The second Covid-19 wave had high human cost but the economic cost is minimal,” Prithviraj Srinivas, chief economist at Axis Capital told news agency Reuters.
“Looking ahead, we believe Covid-19 is presenting itself as less of a risk to economic recovery thanks to vaccination progress and low risk perception,” he added.
Shashank Mendiratta, economist at IBM noted that strong GDP growth in Q1FY21 reflects large favourable base effects after double digit contraction during the same period last year. While domestic demand is ticking up, the pace remains slow.
“Looking ahead, high frequency indicators remain mixed with many remaining below pre-pandemic levels. With substantial slack still in the economy, continued policy support will be required to get activity back to normalcy.”
Watch India records best-ever quarterly GDP growth at 20.1% in Q1