GDP growth: Too early to cheer

The high growth figure is due to the low base effect

The 20.1% GDP growth in the first quarter of 2021-22 is not surprising given the low base on which it has been measured. The first quarter of 2020-21 had seen a crash of 24% in GDP because of the nationwide pandemic lockdown, and the present growth figure should be seen in that context. The economy, even after growing nearly 25%, is about 9% smaller than it was in the first quarter of 2019-20. The growth number is also below both the Reserve Bank of India forecast, which had placed it at 21.4%, and some other projections. But the first quarter of the current fiscal was also not normal because the second wave of the pandemic had hit many parts of the economy. Though there was no national lockdown, some areas were badly affected and some others showed signs of recovery.

Sectoral performances are varied, with some throwing up surprises and others meeting expectations. Though it was apprehended that agriculture and allied activities would be hit because of an erratic monsoon, they held up and scored a high 4.52% growth. The services sector, which involve high-contact activities, was also expected to fare badly because of the lockdowns, but that sector too did better than expected.

Also read: Why euphoria around Q1 GDP is misplaced

It is a surprise that construction grew by 69% and trade, hotel, transport and communications were up by 34.5%. Manufacturing and mining did well, growing 50% and 19% respectively. One other bright point was the increase in private consumption, which is an indication of growth, but it was below the 2019-20 level and below the overall growth rate. Exports did well but they were also below the 2019-20 level. The growth in fixed investment was high, and this was because of government spending on big projects.

The message from the figures about the immediate future course of the economy is mixed. There are indications of momentum returning to some sectors but it is not certain that it will be sustained. The impact of the monsoon is yet to be fully felt. If there is another wave of the pandemic and it happens in the economically important regions of the country, growth will certainly be hit, and the present pace of recovery will slacken. Much will also depend on the spread of the vaccination programme. It is not known whether the unorganised sector has grown, as the GDP figures are only about the formal economy. Private consumption and household spending might remain low and the government has not taken any major steps to stimulate demand. So, the chances of the economy making a quick rise to pre-pandemic levels are still low.