The Ministry of Finance, in its monthly economic review report for November, has said the real GDP of India in Q2 financial year (FY) 22 has grown by 8.4% year-on-year (YoY), thereby recovering over 100% of the pre-pandemic output in the corresponding quarter of FY20.
“India is among the few countries that have recorded four consecutive quarters of growth amid Covid-19 (Q3, Q4 of FY21 and Q1, Q2 of FY22), reflecting the resilience of the Indian economy,” the finance ministry report added.
As per the official data, 19 among 22 high-frequency indicators (HFIs) in September, October and November crossed their pre-pandemic levels in the corresponding months of 2019. “India has not only caught up with its pre-pandemic output of Q2 but is also expected to do so for the full year,” the report added.
As per the finance ministry, the economic recovery has been driven by a revival in services, full recovery in manufacturing and sustained growth in agriculture sectors.
It said the data shows the investment cycle has kickstarted in the country. “The recovery suggests kick-starting of the investment cycle, supported by surging vaccination coverage and efficient economic management activating the macro and micro drivers of growth,” the report said.
It said on the demand side, exports and investment constituted the macro drivers, which rose by 17% and 1.5%, respectively, over pre-pandemic levels. Private consumption also saw recovery from 88% in Q1 to 96% in Q2, and become an emerging macro growth driver.
On the supply side, while real GVA in agriculture continued to be higher than its pre-pandemic level, manufacturing and construction sectors also surpassed their pre-pandemic levels.
“Reassuringly, GVA in trade, hotel and communication services sharply improved from pre-pandemic recovery rate of 70% in Q1 to 90% in Q2, to become another emerging growth driver of the economy as contact-based services overcame the fear of the pandemic,” the report said.
India’s GDP expanded by 8.4% in the September quarter on the back of a pickup in vaccination and amid a boost in services activity following a devastating second Covid-19 wave.
The ministry report highlights that India’s economic recovery is expected to gain further strength in the remaining quarters of the financial year.
The new Covid-19 variant Omicron could pose a fresh risk to the ongoing global economic recovery. However, initial evidence shows the Omicron variant may be less severe and more so, with the increasing pace of vaccination in India, the report added.
Factors aiding economic recovery of India
The agriculture sector has been the foundation on which economic contraction in India was minimised in FY21 and recovery sped up in FY 2021-22. While healthy progress in sowing and adequately filled reservoirs ensured rich harvest and rising production, an increase in MSPs in 2021-22 and progress in rice procurement raised rural incomes, the report said.
The index for eight core industries accelerated in October to grow at 7.5% over the previous year level, on growth in both coal and cement and natural gas. Index of Industrial Production (IIP) saw a continued recovery in October 2021 on the back of a boost in infrastructure and intermediate goods. The PMI manufacturing expanded from 55.9 in October to 57.6 in November and PMI services stayed above 58 in November.
As per the ministry, this not only mirrors the GDP growth of Q2 but also highlights the “strengthening” of the domestic market and global demand.
November’s GST collection rose to its second-highest level of Rs 1.31 lakh crore, crossing 1.3 lakh crore level for the second straight month. The UPI transactions’ value stood at Rs 7.68 lakh crore in November 2021, almost double the corresponding month of 2020. Currency-in-circulation declined in November, which shows an uptick in consumer sentiment.
The MPC in its December statement had maintained the growth forecast of 9.5% during FY 2021-22, implying a full recovery and a 1.6% growth over the pre-pandemic GDP level of FY 2019-20. As per the ministry, India could be among only a few economies in the world to rebound strongly from Covid-19 induced economic contraction of 2020-21.