GDP Decoded

All of us must still have a clear picture of this time last year – imposition of stringent lockdowns to curb the spread of virus leading to a historic contraction of 24.4% for the April-June quarter. However, last Tuesday revealed GDP numbers for the same quarter this year that showed a perfect V-shaped graph as shown below –

Rebounding from the great slump, India reported its best-ever quarterly growth of 20.1% for the 1st quarter of FY22. In value terms, GDP currently stands at Rs. 32.38 lakh crore, rising from Rs. 26.95 lakh crore in the same quarter last year. After all, the state-wise lockdowns experienced due to the deadly 2nd wave of Covid did not prove to be as severe as the nationwide lockdown imposed last year.

But, how can we possibly achieve such a high growth number? Let’s delve into the reasons for the same.

We have been hearing about the low-base effect quite a lot nowadays with regards to different economic concepts. Well, the low-base effect played a big role here as well. It basically is a tendency of exhibiting a large percentage figure as a result of the change from a low initial figure. Thus, when we compare the current figures with that of FY21Q1 i.e., 32.38 lakh crore with 26.95 lakh crore, we arrive at an immense statistic of 20.1%.

Yet, there are some real positives that helped our economy attain these numbers. To start with the most cyclical and growth-representative area – the manufacturing sector put up a stellar show with a growth rate of 49.6% this quarter. Manufacturing activities reached their three-month highs in July on account of rising new orders, growth in exports, and quantity of purchases and input stocks which can be seen in the given graph.

Along with this, the construction sector comprising real estate and urban development segments such as water supply, sanitation, healthcare, etc. showed a remarkable growth of 68.3%. These sectors also helped in increasing employment, therefore showing development in true sense.

Rise in exports cannot be forgotten on this front. Growing at a rate of 39% from the same quarter last year, this is one of those segments that surpassed even pre-Covid levels. This indicates strong demand for Indian goods including petroleum products, gems and jewellery, and textiles.  

Besides exports, the other segments considered in GDP calculations – consumer spending and private investments - also played a major role by showing a growth rate of 19.34% and 55.3% respectively from the base of the same quarter last year. GST collections also regained their six-figure mark as the amount recorded was over 1 lakh crore for the month of July and August each. These have clearly powered the turnaround in GDP performance.

Power demand hiked by 18.6% as compared to last year, showing greater levels of activity. Rising retail and auto sales are also worth the mention here. Not to miss, there are two other segments that posted data higher than their pre-Covid levels. We are talking about sectors including ‘agriculture, forestry and fishing’ and ‘electricity, gas, water supply, and other utility services’ which rose 8.21% and 3% respectively - not from the same base that we have been talking about throughout, but from the base of FY20Q1.

Work generated under the MGNREGA scheme in August 2021 is 58% lower than July 2021, thus showing that rural workers are migrating back to urban industrial areas for work. In addition to all of this, BSE Sensex breaching the 58000-mark for the first time has created a bullish investor sentiment in the country.

But 20.4% in one fiscal quarter? Is that really the kind of growth that the economy has seen - let's see for ourselves!

Though GDP shows the highest growth rate ever, the Indian Economy is still somewhere in 2019. With a 24.4% dip in Q1 of 2020-21, the growth of 20.1% does not even compensate for the GDP lost due to the pandemic. Let’s see the numbers of GDP over the past few years:

However, these numbers are misleading, because the numbers of 2020-21 are also rigged by the Covid Pandemic. In order to assess where we truly stand today, we shall make a comparison between the numbers from 2019-20 to the numbers we received today: 32,380,000,000,000.

Thus we can conclude that we have gone down in the true sense by an average of 9.23% from 2019-20, which portrays the last numbers that were not skewed by the impact of the Pandemic. 

Moreover, the GDP at current prices has been increasing beyond boundaries because of the high rates of inflation. GDP at Current Prices (which factors in inflation) in Q1 2021-22 is estimated at ₹51.23 lakh crore, as against ₹38.89 lakh crore in Q1 2020-21, showing a growth of 31.7% as compared to the contraction of 22.3% in Q1 2020-21. The inflation rate in 2018 was 1.9 times, which came to a level of 1.4 times right before the Pandemic started. But then, the outbreak of the Covid-19 pandemic raised inflation rates to a high of 5.4 times. This is the sole reason due to which the GDP at Current Prices has increased by 31.7%, which is the misleading factor hitting the eyes of all people. 

If we believe that these are excellent GDP Indices, we are looking in the wrong direction as the numbers plainly do not consider the impact of Covid 19 and that of excessively high inflation rates in these years.

There is a primary question that is posed when we consider these numbers as misleading: What shall be the road ahead for the Indian Economy?

The first thing to note is that India is becoming an export hub for software services. This quarter itself, more than 55% of the total GVA came out of the service industry. On this account, the Indian IT Sector has been expected to provide growth of 6-8% in the next year in its overall exports. Moreover, the Indian Software Industry is expected to hit the $1 trillion mark before the next decade arrives, signalling a positive move in the economic situation. 

Another notable move by the Ministry of Finance is the National Monetisation Pipeline (NMP), which is expected to have a multiplier effect on the country. With this, India is expected to hit the commitment of $5 Trillion in the next 3 years. Adding the likely proceeds from the ongoing disinvestment in Public Sector Undertakings (PSUs) and the new proceeds from leasing out assets, non-debt capital receipts could double to a handsome 1% of GDP per year over FY21-FY24. 

The Indian healthcare industry is anticipated to play a major role in the upcoming future because of the following reasons:

  • The Indian healthcare industry is on the verge of shifting to digitally-enabled remote consultations via teleconsultation. The upcoming “telemedicine” market in India is expected to increase at a CAGR of 31% from 2020 to 2025.

  • In July 2021, a cohort of six health-tech start-ups — 4basecare, Haystack Analytics, zMed Healthcare Technologies, Tricog, Aira Matrixand Qritive — was selected by the India Edison Accelerator, fuelled by GE Healthcare India to scale up their technologies. 

  • On March 17, 2021, the Health Ministry’s eSanjeevani telemedicine services crossed 3 million (30 lakh) teleconsultations since its launch, enabling patient-to-doctor consultations from the confines of their home and doctor-to-doctor consultations.

Apart from these, a lot of commitments have been made to the general public over the years, more than 90% of which are still mere words for them. However, the steps that the Government is taking may make this fantasy a reality. Highest FDI has been allowed in this fiscal year, increasing elasticity on such operations. The amendment of the Retrospective Tax, which will help attract foreign direct investments, is worth a mention here.

Hence, we may say that the numbers of GDP are misleading, as the kind of growth it shows is not the kind of growth that the economy has actually seen. However, the government and all other corporate bodies are working hard enough to get the economy back on track and finally hit the committed “5 Trillion mark”.

That’s all for this week! We hope you liked it and would love to know your thoughts in the comment section. This article is written and curated by Harsh Harlalka and Kashish Agarwal.

(Harsh Harlalka is a 2nd year student pursuing BCom(H) at St. Xavier’s College (Autonomous), Kolkata and a Junior Associate of the Xavier’s Finance Community.)

(Kashish Agarwal is a 2nd year student pursuing B.Sc Economics(H) at St. Xavier’s College (Autonomous), Kolkata and a Junior Associate of the Xavier’s Finance Community.)