Wednesday 26 January 2022
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GDP leaps to 8.4% in July-September: Challenges ahead

The GDP of India at constant prices (2011-12) in Q2 2021-22 is estimated at Rs 35.73 lakh crore, as against Rs 32.97 lakh crore in Q2 2020-21

The economy of the country continued to grow in the July-September quarter, marking the fourth consecutive quarter of positive growth. India’s Gross Domestic Product (GDP) grew 8.4% on-year basis against a contraction of 7.4% during the same period last year. The growth showed that the economy remained on the recovering trajectory during the second quarter. The positive growth was aided by the re-opening of India’s economy after the second wave of the Covid-19 pandemic. GDP at constant prices (2011-12) in the quarter came in at Rs 35.73 lakh crore, against Rs 32.38 lakh crore in the previous quarter.

GDP at current prices in Q2 2021-22 is estimated at Rs 55.54 lakh crore, as against Rs 47.26 lakh crore in Q2 2020-21, showing a growth of 17.5% as compared to 4.4% contraction in Q2 2020-21. 

India’s GDP at constant (2011-12) prices in Q2 2021-22 is estimated at Rs 35.73 lakh crore which is higher than the Rs 35.66 lakh crore seen in the first quarter of 2019-20, signalling that India has recovered from the Covid-induced jolt.

During the July-September quarter, trade, hotels, transport, communication and services related to the broadcasting sector grew at 8.2%.

Public administration, defence and other services sectors grew at 17.4% during the July-September quarter against 5.8% during the previous quarter.

India’s response to the Covid-19 pandemic was from both supply and demand sides. This has helped India post strong economic activity, the CEA said.

GDP numbers clearly shows recovery continued robustly this year, said CEA Krishnamurthy Subramanian. He added that recovery is not less noteworthy despite the base effect.

Government Final Consumption Expenditure (GFCE) came in at Rs 3.61 lakh crore in the second quarter of the fiscal year against Rs 4.21 lakh crore in the previous quarter.

Private final consumption expenditure grew to Rs 19.48 lakh crore in the July-September quarter, up from Rs 17.83 lakh crore in the previous quarter.

The manufacturing sector grew 5.5% in the second quarter while the construction sector grew 7.5%. Both the sectors posted a moderated growth when compared to last quarter.

The agriculture sector continued to grow at 4.5% in the quarter under review while Mining and quarrying grew at 15.4%.

“While capacity utilisation levels would have improved in the last quarter, private investment may still take time to recover as corporates and banks remain risk-averse given the looming uncertainties. High commodity prices and global supply bottlenecks would pose a challenge for the manufacturing sector. The emergence of the new Covid-19 variant has infused uncertainty in the system. If this uncertainty lingers or aggravates, it would adversely impact business and consumer sentiments, with repercussions on the economic growth,” said Rajani Sinha, Chief Economist and National Director — Research, Knight Frank India.

“The Q2 growth rate above 8% has propelled India as the World’s fastest-growing major economy. We saw economic activities returning back to normalcy post the second wave earlier this year. This is the fourth consecutive quarter of positive growth after a two-quarter negative growth witnessed last year. The result of the government spending is visible in the contribution of the real estate and construction sector to the growth. Agriculture has chipped in too on the back of a good monsoon. I hope that the Reserve Bank of India (RBI) continues to support growth with its accommodative policy even though there is a threat of inflation derailing the trajectory,” said Vikash Khandelwal, CEO, Eqaro Guarantees.

The central government’s finances continue to benefit from buoyant tax realisations. The fiscal deficit was contained at 36.3% of the budget estimate, even while expenditure picked up. The multi-year low fiscal deficit ratio can be attributed to robust revenue growth, outpacing expenditure rise during the first half of the fiscal. Capital expenditure at 45.7% of the target also showed an encouraging trend in line with the government’s focus on asset creation. 

India’s GDP grew by 8.4% compared to a 7.4% contraction in the same period last year. GDP at constant prices (2011-12) in Q2 2021-22 is estimated at Rs 35.73 lakh crore, as against Rs 32.97 lakh crore in Q2 2020-21.

“The Q2 GDP data at 8.4% is in line with most estimates, this pegs the H1FY22 growth at 13.7%. The recovery has been broad-based with most components contributing to growth. Mining, construction, real estate showed considerable growth. A good monsoon year reflected well with high agricultural output. Private consumption is likely to pick up as we near complete normalisation. The private capex will likely catch up with government spending and aid growth further. The data will have a positive bearing on the RBI’s MPC meeting next week. The low interest, excess liquidity policy is paying good results. Going forward, the way countries across the globe handle the new variant of the pandemic, rising inflation, and movement of crude will have an impact on the growth rate across the globe.”

“The economic activity in Q2 FY22 received favourable support from recovery in manufacturing and construction. The gradual removal of lockdown, good monsoon year and an increasing number of vaccinations helped boost consumer confidence. India’s Q1 and Q2 FY22 growth is optically higher due to negative growth in Q1 and Q2 of FY21. The H1FY21 saw the worst growth period in the past few decades as the economic activity was severely impacted due to pandemic-induced lockdowns, but now the indicators are at a positive 8.4 %, majorly due to government support across all sectors. Even though the situation has drastically improved this year, several economic challenges such as rising inflation, high input cost, and crude may limit govt’s capacity to act on the fiscal front. The risk arising due to the Omicron variant are key risks to growth going forward. Continued low interest and easy liquidity policy will help sustainable growth.”

The CARE Ratings’ Economics Meter spiked in July at 8.25 and then plateaued in the region of 6.5-7 in the next three months. The CEM looks objectively at 14 economic indicators: PMIs, collections, eWay Bills, Exports, imports, bank credit, debt issuances, issues, CP issuances, power consumption, auto registrations and employment. These indicators highlight the stability that has been achieved in the economy reflecting a return of consumption.

“The Indian economy has performed quite well in the second quarter of the year after the removal of the lockdown from July onwards in most states. The services sector however continued to be impeded by selective opening up due to the challenges posed by social distancing. It was only after September that various state governments gradually opened these services,” said CARE Ratings.

Services (including construction) will likely grow by 7.6% YoY in 2QFY22 after an 11% YoY decline a year ago and slowing moderately from 16.1% YoY growth in 1QFY22. A robust construction sector, recovery in contact-intensive services and pickup in government spending will support the services sector.

Crude Oil production declined by 2.2% in October 2021 over October 2020. Its cumulative index declined by 2.8% from April to October 2021-22 over the corresponding period of the previous year.

India’s eight core sector data recorded 7.5% growth during the month of October. Eight Core Sector came in at 15.1% during the April-October period. 

After lagging the recovery during the initial phases, Q3 (Q2 of the fiscal year) saw services activity playing catch up. Relative control over new infections and a large increase in vaccination helped improve services activity. Indeed, while supply shortages weighed on manufacturing, the services recovery scaled greater highs during the past quarter. Consumer and business optimism is improving, leading to an uptick in job creation across sectors.

We peg GDP growth for 2QFY22 at 7%, up from our earlier estimate of 6.7% on better-than-expected recovery in contact intensive services while GVA growth is pegged at 6.8%.

The fiscal deficit for the April-October period stands at 36.3% of the Budget estimate of Rs 15.07 lakh crore. The fiscal deficit during the same period last year stood at 119% of the budget estimates.

Revenue receipts at 70.5% of budgeted estimates. Revenue Receipts up to October 2021 stand at 12.59 lakh crore against the budget estimate of Rs 17.88 lakh crore.

The RBI has forecast India’s GDP growth to come in at 7.9% in the second quarter of this fiscal year. 

The Q2 FY22 GDP print to be released on 30th November is likely to register a growth of 7.8% y-o-y. On a Gross Value Added (GVA) basis, we expect growth of 7.3% y-o-y. The gap between GDP and GVA is likely to be driven by higher tax revenue collection and lower subsidy pay-outs in this quarter.

We forecast India’s economy expanded 9.6% y/y in Q3 21 (July-September, or Q2 of the fiscal year 2021-22), aided by a low base and a gradual reopening of contact-intensive services. Our slightly adjusted forecast (previous: 9.9%) indicates that the economy is still on track to grow in double digits for FY 21-22 at around FY2021-22 (10%), along with rapid growth in nominal activity given higher inflation as well.

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