The MOSPI announced first quarter GDP growth at 20.1%, which was largely on expected lines. However, the GDP still falls short of the Q1-2019 GDP, hinting that the national economy is still to recoup to pre-COVID levels of output.
Macro look at the GDP
One way to look at the GDP is to take a view on real and nominal GDP. The real GDP is nominal GDP minus inflation rate. If you look at the real GDP for Q1, then in absolute terms, it is still -9.2% lower than the Q1-2019 levels. That is a clear indication of the impact of COVID. However, if you look at nominal GDP and compare with the first quarter of FY2019-20, nominal GDP is 2.3% higher indicating that it is actually high levels of inflation that spoilt real GDP numbers.
Agriculture all the way
Agriculture, forestry and fishing is the only sector that has grown positively in the last 2 financial years. In fact, the agri-sector is up 8.2% over 2019 and at 4.5% in Q1, it really remains the star performer. The other sector showing positive growth over 2019 is power, gas and water supply; being a utility service. If you look at any of the other sectors like manufacturing, construction, trade or hotels and transport, they are lower compared to 2019. In fact, construction is down -15% and trade/hotels are down -30% over 2019, showing the real pressure on high-contact businesses.
What, after the base effect?
The big question about the GDP figure is whether there is too much of low base effect in this 20.1% real GDP growth. The answer is an emphatic yes. In the Jun-20 quarter, the GDP was down -23.9% on a yoy basis. On that low base, it is obvious that the current Jun-21 GDP was bound to be optically good. The question is what happens once the base effect wanes? Once we go to Sep-21 quarter, base effect is substantially lower and by Dec-21, we will already be in a positive base. That means, this is the last of the quarters when you can expect significant base effect and now it will have to be genuine growth triggers.
Don’t miss the trade story
In the midst of the overall GDP story, one thing that stood out was the focus on trade. Exports and import of goods have been sharply higher in the Jun-21 quarter compared to the Jun-19 quarter. The Q1-Jun-21 merchandise exports are 19.5% above the Jun-19 Q1 levels. If you look at the value of merchandise goods imported, that is up 4.4% over the First quarter of FY19-20. One can say that exports are leading the spurt in growth or that the export thrust given via “Make in India” and “Atma Nirbhar Bharat” are working. The real story is that the share of exports and imports in the overall GDP is sharply up over 2019, and it could mean a trade driven recovery in GDP. That is good news!