The Ministry of Statistics has released the first quarter GDP (gross domestic product) and GVA (gross value added) for the first quarter of the current financial year. The government used the year-on-year (yoy) comparison method, showing a growth of 20% in GDP in Q1 this year compared to Q1 last year, to claim that India was experiencing a V-shaped recovery. On the other hand, several government critics used the quarter-on-quarter (qoq) method to claim that the economy was losing momentum since it showed a 17.7% contraction in Q1 this year as opposed to Q4 (January, February, March) of last year. In other words, which of these statements is accurate? Where does the Indian economy currently stand?

Two different views — the government’s claims of a V-shaped recovery and the critics’ claims of a sharp contraction of the economy — were inspired by two different comparisons. GVA thrived in Q1FY22, owing to gains in manufacturing and construction, whereas private consumption and investment engineered the growth in GDP in yoy terms. However, all sectors remain well below pre-Covid levels in the first quarter of FY22. Only agriculture and electricity experienced higher real GVA in comparison to their pre-Covid levels.

Overall, GDP growth in Q1 was acceptable but not spectacular. It is below pre-pandemic levels, and the slowdown hit the economy then, and India Inc does not share the government’s or the RBI’s guarded optimism regarding the economy. In the words of the RBI Governor, “We are not out of the woods yet.”

This year, the recovery is estimated between 8.3% (World Bank) and 10.5% (government), with 9.5% (IMF) in the middle. In light of that, what happens next? Compared to the World Bank, India’s chief economic adviser forecasts a growth rate from 7 to 6.5% in 2022-23, before accelerating to 8% following that. According to the IMF, next year’s GDP will grow by 8.5%. It is typical for such numbers to be revised substantially. The International Monetary Fund is wellknown for overestimating growth rates — its India growth projection dropped from 12.5% in April to 9.5% in July. Additionally, it needs to be kept in mind that the officially recorded growth in the three years before the epidemic averaged only 5.8%. The pandemic has also generated productivity gains from the organised sector, dislodging the unorganised, which will generate flow-through benefits for corporate profits and tax revenue. Productivity gains are also expected from the digitisation of economic activity.

SMALL BIZ WOES

In addition, compare the last bout of rapid growth and current growth: an investment boom before the 2008 financial crisis versus a subsequent decline in investment as a share of the GDP. The employment ratio has fallen sharply as a result of another factor of production; i.e., labour. As with excessive corporate debt levels correcting, these numbers could rebound, but the organised sector’s profit-driven recovery will not be enough if the small- and medium-scale sectors do not recover. For the economy to grow, all engines — private and government investment, domestic demand and exports — must all be firing: The three need to be firing simultaneously. As the government has centered its investment strategy on growth, exports are on the rise.

As a result of pandemic-related supply chain issues, the global manufacturing industry decelerated in August 2021. The Chinese government implemented its zerotolerance policy, resulting in factories and ports being closed due to outbreaks of the Delta variant. Due to the Delta variant, many factories in Southeast Asia closed. Despite the predominantly strong global demand for manufactured products, factory and port interruptions, transportation capacity shortages and hoarding of critical inputs have all negatively affected growth in the industry. This is particularly true for East Asia. Many countries have seen their inflation rates rise because of the growing gap between supply and demand.

Overall, the global economy is forecast to grow 6% in 2021 and 4.9% in 2022. Additionally, the 2021 global forecast remains unchanged from April 2021 (WEO). Development prospects for emerging markets and developing economies have been downgraded for 2021, especially for emerging Asia. Advanced economies, on the other hand, are forecast higher. As the pandemic unfolds and as policy support changes, these revisions take into account these changes. As a result of additional fiscal support legislation expected in the second half of 2021 and improved health metrics, the uptick of 0.5 percentage points in 2022 is attributable mainly to the forecast upgrade of advanced economies, notably the United States.

(Dr VVLN Sastry is a post doctorate in Economics and a PhD in Law & Public Policy. He is a passionate economist, financial analyst and law expert.)