Why India's Q1 GDP 'comeback' has Opposition teaching math

India's GDP grew by 20.1% in Q1, aided by manufacturing and construction sectors. Other metrics also seemed to look great on paper - growth was witnessed in all sectors.

Manufacturing grew 49.6% in the April-June period compared to a contraction of 36% a year ago. The construction sector grew 68.3% as against a contraction earlier. Mining expanded over 18%. Electricity, gas, water supply and other utility services segment grew by over 14% as against 9.9% contraction a year ago.

However, we must look at the broader picture, because even though the numbers look promising, they stand against a low base level of measure of the year-ago period.

The economy had contracted by a massive 24.4 per cent in April-June 2020 after one of the world's most stringent lockdowns was imposed to curb the spread of coronavirus infections, crippling economic activity. GDP had grown by 1.6 per cent in the January-March 2021 quarter.

The sequential contraction in GDP in Q1 of the current fiscal came after three consecutive quarters of expansion.

"It's a big economic comeback," Piyush Goyal tweeted. Other ministers too hailed the country's bounceback.

Read | GDP numbers: Much ado about very little

However, several Opposition leaders and economists spelled out why these numbers must be looked at with caution.

"GDP numbers for Q1 of 2021-22 are very revealing. In Q1 of 2021-22, GDP was Rs 32,38,828 crore which is still below the Q1 level of 2019-20 which was Rs 35,66,788 crore," said Congress leader and former finance minister P Chidambaram, commenting on the low base from which the Q1 GDP was calculated.

"The quarterly output in several key sectors is still below the quarterly output in the same period in the pre-pandemic year, 2019-20. Among the sectors that have not attained the pre-pandemic level are Mining & Quarrying; Manufacturing; Construction; Trade, Hotels & Transport; and Financial & Professional Services. In terms of economic activity, we are still behind in sectors such as Private Consumption, Gross Fixed Capital Formation and Imports," he said.

"Govt and pliant media busy celebrating 20.1% GDP growth. Growth is based on 2020-21 Q1 negative 24.4% base," wrote Derek O'Brien.

Economic Kaushik Basu had a more critical view of the GDP numbers, saying "It needs just a little arithmetic to see that India's Apr-Jun 2021 growth of 20.1% is shocking bad news. The 20.1% is in comparison to Apr-Jun 2020 when India's GDP had fallen by 24.4%. This means compared to GDP in Apr-Jun 2019 (i.e. 2 years ago) India has had a growth of -9.2%."

On the other hand, economist Karan Bhasin had a more conservative viewpoint on the GDP numbers, saying: "So India's GDP estimates for the first quarter came in at 20.1%. Some important pointers pertain to the pickup in Private Final Consumption Expenditure & Gross Fixed Capital Formation - ie. consumption & investment are gradually moving towards the pre-pandemic levels."

"Silver lining? Exports are higher than in 2019. This augers well for India as a strong global economy will help in our growth recovery process. Exports in 2021 are at 768589 crores instead of 706991 in 2019 Q1. They are up 8.7% from 2019 figures," he said.

He also said that the key thing to keep in mind is that this quarter coincided with the second wave and possibly some data collection challenges, and could be subjected to upward revision at a later date.

However, enthused by the 20.1 per cent expansion of the Indian economy in the first quarter of the ongoing fiscal year, India Inc on Tuesday said the number reflects that the economy being hit by the pandemic has bounced back.

Industry chamber CII said it is good to note the impressive bounce-back of the GDP growth despite the adverse impact of the second wave of the pandemic on the economic activity.

(With agency inputs)