Q1 GDP strong, but not strong enough to catapult economy to pre-COVID-19 levels

If one were to plot India’s quarterly GDP growth rates since April-June 2019-20, the graph would broadly resemble the pattern of an inverted mountain.

From a steady moderation throughout 2019-20, it plunged into the ocean’s depth last year, pummeled by the devastating consequences of COVID-19, before beginning to trudge to a stable recovery from October, pulling a dramatic acceleration in April-June this year.

The latest national income data for the first quarter this year that the National Statistical Office (NSO) released on August 31, is, in many ways, an inverted image of last year. Last year, India’s real or inflation-adjusted GDP growth fell 24.4 percent in April-June, the worst in India’s statistical history, a data set that was not unexpected. The deliberation was only over the extent.

The economy would shrink, after all, when factories shut down, people stop eating out, shops remain shuttered, and projects come to a crushing standstill. The first COVID-19 wave and the resultant lockdown had stuttered the broader economy to an abrupt stop.

Contrast this with the current year. India’s economy grew 20.1 percent in April-June, recording a pendulum-like positive swing over last year. These pieces of statistics stand-out in two important respects.

For one, conditions affecting the economy were very similar during the same periods in both the years. The economy remained shut for most part of April-June in 2020 when the first wave hit India. A deadly second-wave hit during April-June this year, forcing lockdowns to break the chain.

Second, despite the shattering second wave that took away hundreds of lives, and triggered stringent restrictions on movement of goods and people, it did not inflict a deep wound on the economy. Or statistically so, it appears.

Are the headline numbers hiding some statistical biases that need to be negated for more objective assessment? Here are two questions that need a closer examination: How has the economy fared in April-June compared to January-March this year? How far is the economy from reaching pre-COVID-19 levels?

A better way to answer these would be to look at the gross value added (GVA) numbers. The GVA is GDP minus taxes, and, therefore, is considered a more realistic proxy to measure economic activity.

The GVA at basic prices in 2011-12 prices in April-June this year stood at Rs 30,47,516 crore, lower by 13 percent compared to Rs 35, 15,963 crore in the last quarter (January-March) of 2020-21.

Also, the GVA during the first quarter of this year was lower by 7.7 percent compared to Rs 33,05,273 crore in the first quarter of 2019-20, the immediate pre-pandemic year.

The trend is broadly similar for most sectors, where the GVA levels have some distance to cover before reaching pre-pandemic levels.

There were, however, a few outliers such as manufacturing and construction sectors that were the primary GVA growth engines in the first quarter of 2021-22. Private consumption expenditure and gross fixed capital formation (GFCF), a marker to gauge investment activity, were the bright spots on the expenditure side.

That said, barring agriculture and electricity, the GVA in all other sectors remained below pre-COVID-19 levels, mirroring the debilitating impact that the pandemic has caused.

There will be two key determinants to sustain a stronger and stable rebound. One, the volume and spatial distribution of monsoon, which has so far remained sub-par. Two, the pace of lifting of restrictions ahead of the festive season in October-November, which will be a function of the pace of vaccination.

India cannot afford to have two successive years of economic washout. The early signs are bright, but there is still many a mile to cover to offset the losses of the pandemic.