India's Q1 GDP Grows by 20.1%, but Consumption Still a Concern: Experts Decode

Seen through the quarter-on-quarter seasonally adjusted numbers, consumption fell by about 9% in the first quarter.

India’s GDP, which shot up to record a 20.1 percent rise in the April-June quarter of Financial Year (FY) 2021-22, reaffirms the government's prediction of a V-shaped recovery made last year, Chief Economic Adviser (CEA) KV Subramanian said.

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India’s gross domestic product (GDP), which shot up to record a 20.1 percent rise in the April-June quarter of Financial Year (FY) 2021-22, reaffirms the government's prediction of a V-shaped recovery made last year, Chief Economic Adviser (CEA) KV Subramanian said.

His remarks came after the growth numbers for April-June quarter were released by the Ministry of Statistics and Programme Implementation, on Tuesday, 31 August.

Subramanian said that the 20.1 percent rise in the GDP in the April-June quarter is indicative of India’s economic recovery. He added the GDP data for the first quarter reaffirms the government's prediction of a V-shaped recovery made last year.

“Gross NPA (non-performing asset) declined from 11.2 percent in March (2018) to 7.4 percent in March (2021)," Subramanian was quoted as saying by Bloomberg Quint.

"External sector providing a stable cushion. Forex reserves continue to grow. Despite supply-side restrictions due to pandemic, inflation was much lower than during GFC (global financial crisis) because of supply-side measures," Subramanian added.

The seasonally adjusted quarter-on-quarter data offers a clearer idea about the impact of the second wave of COVID-19 on the economy.

Compared to an expansion in the previous three months, the economy contracted in the April-June quarter, if seen through the quarter-on-quarter seasonally adjusted numbers, Bloomberg Quint reported.

Meanwhile, Pranjul Bhandari, chief economist at HSBC India, was quoted as saying, “On a seasonally adjusted sequential basis, GDP contracted by 6.3 percent in the June quarter, following a 2.4 percent growth in the March quarter.”

Bhandari added, “The GDP contraction of 6.3 percent q-o-q seasonally adjusted in the June quarter is a third of the contraction in the same quarter last year, when the country was gripped with the first wave. We think both firms and individuals have learnt to operate better in the new normal”, Bloomberg Quint reported.

Similarly, India economist at Nomura, Aurodeep Nandi was quoted as saying, "The broad narrative that it has been a light touch hit to the economy stands true even after this data release."

Private Consumption

Again, seen through the quarter-on-quarter seasonally adjusted numbers, consumption fell by about 9 percent in the first quarter, said Nandi. This compares to over 3 percent growth in the preceding quarter and a drop of 22 percent in the year ago quarter.

Nandi added that fixed investment, too, fell by over 15 percent.

“When we look at the quarter-on-quarter metrics, there is a degrowth of 17.4 percent (in private consumption). And if we compare with Q1 FY20, the degrowth is 11.9 percent. Thus, the recovery has not happened as Indian households faced the brunt of second wave in Q1.”

Soumya Kanti Ghosh, chief economist at SBI Economic Research, was quoted as saying.

Government Spending

Kaushik Das, chief India economist at Deutsche Bank, said that government spending was surprisingly weak during the quarter.

Looking at the year-on-year numbers, Das pointed to the fact that government consumption expenditure, declined 4.8 percent year-on-year in the quarter ended June compared to a 12.7 percent increase a year ago.

"The July fiscal data also showed that expenditure was down 23 percent over a year ago," Das added, "While government expenditure may pick up meaningfully in the second half, it will not be as strong as we had earlier anticipated.”

Level of GDP

Sunil Kumar Sinha, principal economist at India Ratings & Research, was quoted as saying, “To put things into perspective the level of GDP in Q1 FY22 is still 9.2% lower than the level attained in the Q1 FY20", Bloomberg Quint reported.

Sinha asserted that some recovery that Indian economy had made by clocking a positive quarterly GDP growth of 0.5 percent in Q3 FY21 and 1.6 percent in Q4 FY21 was lost due to the second wave.

Bhandari on the other hand said that on a seasonally adjusted basis, GDP is now 5 percent below pre-pandemic levels of March 2020.

(With inputs from Bloomberg Quint.)