India’s Q1 GDP growth zooms record 20.1%, but here’s why it’s deceptive

Low-base of the year-ago period, coupled with pent-up demand and eased COVID-19 restrictions contributed to the growth.

New Delhi: India’s economy grew by 20.1 per cent in the first quarter (April-June) of 2021-22, official data showed on Tuesday. This is the country’s best ever quarterly figures since the mid-1990s when official quarterly data was available.

The gross domestic product (GDP) contracted by 24.4 per cent in the corresponding April-June quarter of 2020-21, according to data released by the National Statistical Office (NSO). This is also a sharp up from the 1.6 per cent growth in the previous quarter (Q4 of 2020-21).

Low-base of the year-ago period, coupled with pent-up demand and eased COVID-19 restrictions contributed to the growth. It is also to note that the growth is in comparison to the GDP figures of the same quarter in the previous year.

Growth of sectors considerably picked up

NSO’s data on Tuesday showed that the real gross value added for Q1 rose by 18.8 percent.

The biggest year-on-year rise was in the construction sector at 68.3 per cent, after it saw the steepest fall of 49.5 per cent in the same period last year as construction activity came to a halt on account of nationwide lockdown.

Manufacturing, which fell 36 per cent in April-June last year, bounced back to grow by 49.6 per cent. Trade, hotels, transport, communication and services related to broadcasting, which tanked 48.1 per cent in April-June last year, grew by 34.3 percent.

Agriculture, the only sector which showed growth last year at 3.5 per cent, once again grew by 4.5 per cent in the April-June quarter this year.

Why are the figures deceptive?

First things first, these numbers indicate that the growth against the sharp contraction in the previous year. The key to understanding this lies in the low-base effect. It means the tendency of a small absolute change from a low initial amount to be translated into a large percentage change.

In this instance, the 20.1 per cent growth in the Q1 of FY22 is higher in comparison to Q1 of FY21 when India’s GDP contracted over 24 per cent. Thus some economists opined that these growth figures are nothing but farce.

“More revealing will be the quarter-on-quarter rate, which we expect to show that India’s economy contracted by 7 per cent amid a devastating second wave of COVID-19”, said Shuchita Shukla, a research analyst at The Economist.

Also, the recovery as shown too hasn’t been as sharp, mostly due to the devastating second wave.

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