For representational purposes (Photo | PTI)
For representational purposes (Photo | PTI)

Q1 GDP grows at record 20 per cent on low base, recovery yet to reach its pre-Covid levels

The economy has improved but is yet to fully recover from the pandemic shock, government data released on Tuesday showed.

NEW DELHI:  The economy has improved but is yet to fully recover from the pandemic shock, government data released on Tuesday showed. Despite a record growth of 20.1% in the first quarter of 2021-2022, the economy is 9% short of the pre-Covid levels. Economists expect the economy to do better in the second half in view of India’s core sector bouncing back to pre-Covid levels, growing at 9.4% in July.

In value terms, the GDP stood at Rs 32,38,020 crore in April-June 2021-22, lower than Rs 35,66,708 crore in the same period in 2019-20. In the first quarter of 2020-21, the GDP had shrunk to Rs 26,95,421 crore, contracting 24.4%, when the first wave of Covid forced the government to impose nationwide lockdown.
While the numbers show the economic impact of the first Covid wave was more severe than the second, the slow pace of private consumption and capital formation indicates that the economy is still not out of the woods.Compared to Q1 FY20, private consumption slipped 12% in Q1 FY22, while private capital formation was down 18%.

While the government’s final consumption expenditure was higher than the pre-Covid period, it contracted 5% compared to last year, as the Centre turned more prudent in spending money.  Economists say poor consumption and private capital formation indicates the economy has not yet recovered and the performance of these two parameters will decide the pace of growth in the coming quarters. 

Economic activity to pick up in 2nd half, say experts

“The devil is in the details and clearly, consumption spending has lagged suggesting that pandemic uncertainties are weighing on their finances and outlook. With risks looming over pent-up demand, the biggest driver of growth may take a while to take off,” said Rumki Majumdar, economist, Deloitte India, adding that the GDP growth will be better in the second half of the current fiscal.

“We expect economic activity to pick up rapidly in the second half. The pace of the recovery may get pushed by a couple of quarters and flow into the next fiscal year and growth may be robust at above 8%, provided we can keep the infection numbers under control. Even if we experience successive waves, they are likely to have a diminishing economic impact, aiding in the pent-up demand accelerating,” she added.

Briefing the media, Chief Economic Adviser Krishnamurthy Subramanian said the GDP data show that the economy is on the path to recovery, claiming that full-year GDP growth is likely to be around 11% mainly on account of what he called ‘structural reforms’. “While the health impact of the second wave was significant, the impact on the economy has not been severe,” Subramanian said adding the impact of the third wave will not be severe thanks to the fast-paced vaccination drive.

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