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Analysis: Q2 GDP back at the pre-pandemic levels

Almost all sectors other than trade, transport, hotels and communications are now at about the levels seen in July-September 2019-20 in terms of their gross value added.

November 30, 2021 / 09:08 PM IST

India’s GDP for the second quarter of 2021-22 regained the levels last seen in 2019-20, lifted by an 8.4 percent year-on-year expansion. Almost all sectors other than trade, transport, hotels and communications are now at about the levels seen in July-September 2019-20 in terms of their gross value added.

The GDP for the second quarter of 2021-22 was estimated at Rs 35,73,451 crore, about 0.3 percent higher than Rs 35,61,530 crore reported in the same quarter of 2019-20.

Agriculture provided a boost to growth once again, expanding 4.5 percent from a year ago, even though the second quarter output is traditionally the smallest of the four quarters. The gross value added (GVA) of the agriculture sector grew by 4.5 percent in three of the past four consecutive quarters, helped by ample rainfall and labour.

The mining and quarrying sector also buoyed growth with a 15.4 percent expansion, from a year ago. Like agriculture, mining and quarrying activities are usually affected by the southwest monsoon rains in the second quarter of the fiscal year. Yet, its GVA climbed to the highest for the second quarter, surpassing the levels last reported in 2017-18. Mining and quarrying had been contracting on a year-on-year basis in the second quarter of the year since then.

The size of the trade, transport, hotels and communications sector – which together employ millions of people - continues to be below the levels seen in 2018-19, hurt by the COVID-19 protocols that prevent crowding. Yet, it expanded 8.2 percent compared to the 16.1 percent contraction experienced in the same quarter of last year when malls were mostly shut, markets partly opened and travel restricted.

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The manufacturing sector grew a modest 5.5 percent in the second quarter, from a year ago, but that was enough to surpass the levels of the same quarter of 2019-20. Utilities expanded 8.9 percent and construction 7.5 percent. While the GVA of utilities for the second quarter is at a new high, construction has not yet regained the 2019-20 level. Financial, real estate and professional services, which together account for about a quarter of the economy, grew 7.8 percent. Yet, its GVA was about 2 percent below the levels of 2019-20.

The gross value added by government services – public administration, defence and other services – was up 17.4 percent in the second quarter of 2021-22 after a 9.2 percent contraction in the same quarter of the last fiscal year. But it was its highest growth recorded in 2011-12 series of GDP.

Reacting to the GDP numbers, ICRA chief economist Aditi Nayar stated that the pace of the GVA growth in the second quarter modestly exceeded the expectations of the rating agency. However, the growth of manufacturing, construction and trade and hotels trailed their forecast, suggesting that rising input costs bit corporate margins. She added: “Although the GDP and GVA year-on-year growth are slightly higher than our forecasts, we don’t believe that the disaggregated data offers meaningful signals of a durable recovery, especially with private final consumption expenditure continuing to trail the pre-COVID level.”

The economists at India Ratings and Research were a little more optimistic. In a statement, principal economist Sunil Sinha said that though the second-quarter GDP was just 0.3 percent higher than the levels of the same quarter of 2019-20, “it does indicate that the economy has finally recovered the ground lost due to Covid19 pandemic”.

Oxford Economics economist Priyanka Kishore estimated that the economy expanded seasonally adjusted 6.6 percent from the previous quarter, after contracting 7.9 percent in the previous quarter. She estimates that the economy has entered a soft patch in the October-December quarter but expects growth to be on a firmer footing in the coming quarters as the share of the fully vaccinated population rises.

ICRA’s Nayyar also concurred with that view. She wrote that many indicators have displayed a flagging momentum in November 2021, suggesting that the revival in economic growth was yet to become durable. Ind-Ra’s Sinha believes economic recovery will require both fiscal and monetary policy support in the near term to ensure that recovery continues despite the threat posed by the new COVID-19 variant.
Tina Edwin is a senior financial journalist based in New Delhi.
first published: Nov 30, 2021 09:07 pm
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