Explained: What Q2 GDP growth numbers reveal about the economic recovery

India’s GDP progress stood at 8.4% year-on-year within the second quarter of the present monetary 12 months. The economic system had contracted 7.4% in Q2 of FY21. The federal government expects India to witness double-digit GDP progress for the whole fiscal, although consultants are eyeing a quantity nearer to 9.5%. Economists and consultants are of the view that the newest GDP knowledge and a break-up of its parts factors to sustained restoration, although not broad-based.
Additionally, a comparability of the GDP knowledge to the pre-pandemic 2019 period is essential to grasp the extent of restoration. The GDP at Fixed (2011-12) Costs in Q2 2021-22 is estimated at Rs 35.73 lakh crore. The determine is marginally larger than the GDP of Rs 35.61 lakh crore in Q2 FY20 and Rs 35.66 lakh crore in Q1 FY20. Sectors that have been in deep crimson because of the setback from COVID-19 pandemic are bouncing again, however continued restoration would require extra fiscal assist, consultants say.
Deep-dive into GDP knowledge
Based on Sachchidanand Shukla, Chief Economist at Mahindra Group, on the sector stage, agriculture progress has been heartening. “Even sectors corresponding to building and commerce, accommodations & providers are bouncing again and coming nearer to the pre-pandemic ranges,” Shukla tells TOI. “That is essential since these sectors are main suppliers of jobs on the lower-end,” he says, including that he’s enthused by the federal government expenditure numbers as effectively.

DK Srivastava, Chief Coverage Advisor at Ernst Younger feels that the financial restoration seems to be wholesome and in the precise course.
“As of now within the first half we’re in deficit on the GDP if one have been to match to the primary half of FY20. Nevertheless, if progress continues to be robust, we anticipate to finish FY22 larger than FY20 when it comes to GDP. We additionally anticipate the laggard sectors to choose up, sectors corresponding to building, commerce, accommodations & providers to recuperate fully within the coming quarters,” he tells TOI.
The place is GDP progress headed?
For the total monetary 12 months, consultants consider India’s GDP progress will stand at round 9.5%. “If the federal government continues to assist on the fiscal aspect, with give attention to capital expenditure helped by excessive tax collections, and there’s no main impression from the brand new COVID variant, we anticipate a GDP progress of round 9.5% in the whole 12 months,” says Srivastava.
Mahindra Group’s Shukla too stresses on the necessity for fiscal and financial coverage assist. “Given the Ok-shaped restoration we’re witnessing & the newest bout of uncertainty & concern due Omicron, the federal government ought to proceed to assist progress. It has sufficient leeway since tax collections have stunned positively and GST collections are anticipated to stay buoyant too,” he believes.
Shukla feels that the RBI will seemingly proceed its supportive progress stance and never hike repo or reverse repo fee this fiscal. “We anticipate a GDP progress of 9.5% for the whole 12 months, although the unfold of latest variants might pose some potential draw back danger,” he says, including that gross mounted capital formation will play a key position in continued financial restoration.
What about broad-based restoration?
Indranil Pan, Chief Economist, YES Financial institution is of the view that if one seems to be on the Expenditure aspect of the GDP image, the story is extra telling. The Personal Last Consumption Expenditure (PFCE) and Authorities Last Consumption Expenditure (GFCE) are nonetheless a lot under the Q2 FY20 ranges. Whereas PFCE has a share of 54.5% in GDP, that of GFCE is 10.1% for Q2 FY22.

Pan additionally factors out that though the Gross Fastened Capital Formation is within the constructive territory, the cumulative quantity Q1&Q2 FY22 remains to be decrease than Q1&Q2 of FY20.
“The information means that the restoration is Ok-shaped and never broad based mostly in any respect. The casual sector continues to endure and whereas the projected GDP progress variety of 9.5% for this fiscal seems to be good, the expansion just isn’t equitable,” he tells TOI.
Based on the Sure Financial institution Chief Economist, one other knowledge level that’s fascinating is “Valuables” which has proven a progress of 170% over Q2 FY20. As outlined by the Ministry of Statistics, valuables are costly sturdy items which might be bought in expectation of a rise of their costs. This contains jewelry, artistic endeavors, valuable stones and so on. “This means the discretionary nature of the consumption and therefore can’t be categorised as productive consumption,” he says.
Srivastava of EY believes that for the restoration to be extra broad-based the manufacturing sector wants to choose up extra and attain its progress potential of over 8%.
Shukla says that whereas the precise GDP could have marginally crossed the determine of Q1 FY20, it has come after 7-8 quarters within the interim. “That deadweight loss is probably not recovered,” he feels.
The Indian economic system is certainly exhibiting indicators of rising from the COVID-19 induced financial setback. Excessive-frequency indicators corresponding to IIP, PMI & core sector knowledge additionally level to enchancment in financial sentiment. Nevertheless a sustained financial restoration would require all main sectors to bounce again to pre-pandemic ranges.