Explained: What Q2 GDP growth numbers reveal about the economic recovery – Times of India

India’s GDP growth stood at 8.4% year-on-year in the second quarter of the current financial year. The economy had contracted 7.4% in Q2 of FY21. The government expects India to witness double-digit GDP growth for the entire fiscal, though experts are eyeing a number closer to 9.5%. Economists and experts are of the view that the latest GDP data and a break-up of its components points to sustained recovery, though not broad-based.
Also, a comparison of the GDP data to the pre-pandemic 2019 era is important to understand the extent of recovery. The GDP at Constant (2011-12) Prices in Q2 2021-22 is estimated at Rs 35.73 lakh crore. The figure is marginally higher than the GDP of Rs 35.61 lakh crore in Q2 FY20 and Rs 35.66 lakh crore in Q1 FY20. Sectors that were in deep red due to the setback from COVID-19 pandemic are bouncing back, but continued recovery would require more fiscal support, experts say.
Deep-dive into GDP data
According to Sachchidanand Shukla, Chief Economist at Mahindra Group, at the sector level, agriculture growth has been heartening. “Even sectors such as construction and trade, hotels & services are bouncing back and coming closer to the pre-pandemic levels,” Shukla tells TOI. “This is important since these sectors are major providers of jobs at the lower-end,” he says, adding that he is enthused by the government expenditure numbers as well.

DK Srivastava, Chief Policy Advisor at Ernst Young feels that the economic recovery looks healthy and in the right direction.
“As of now in the first half we are in deficit on the GDP if one were to compare to the first half of FY20. However, if growth continues to be strong, we expect to end FY22 higher than FY20 in terms of GDP. We also expect the laggard sectors to pick up, sectors such as construction, trade, hotels & services to recover completely in the coming quarters,” he tells TOI.
Where is GDP growth headed?
For the full financial year, experts believe India’s GDP growth will stand at around 9.5%. “If the government continues to support on the fiscal side, with focus on capital expenditure helped by high tax collections, and there is no major impact from the new COVID variant, we expect a GDP growth of around 9.5% in the entire year,” says Srivastava.
Mahindra Group’s Shukla too stresses on the need for fiscal and monetary policy support. “Given the K-shaped recovery we are witnessing & the latest bout of uncertainty & fear due Omicron, the government should continue to support growth. It has enough leeway since tax collections have surprised positively and GST collections are expected to remain buoyant too,” he believes.
Shukla feels that the RBI will likely continue its supportive growth stance and not hike repo or reverse repo rate this fiscal. “We expect a GDP growth of 9.5% for the entire year, though the spread of new variants could pose some potential downside risk,” he says, adding that gross fixed capital formation will play a key role in continued economic recovery.
What about broad-based recovery?
Indranil Pan, Chief Economist, YES Bank is of the view that if one looks at the Expenditure side of the GDP picture, the story is more telling. The Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE) are still much below the Q2 FY20 levels. While PFCE has a share of 54.5% in GDP, that of GFCE is 10.1% for Q2 FY22.

Pan also points out that even though the Gross Fixed Capital Formation is in the positive territory, the cumulative number Q1&Q2 FY22 is still lower than Q1&Q2 of FY20.
“The data suggests that the recovery is K-shaped and not broad based at all. The informal sector continues to suffer and while the projected GDP growth number of 9.5% for this fiscal looks good, the growth is not equitable,” he tells TOI.
According to the Yes Bank Chief Economist, another data point that is interesting is “Valuables” which has shown a growth of 170% over Q2 FY20. As defined by the Ministry of Statistics, valuables are expensive durable goods that are purchased in expectation of an increase in their prices. This includes jewellery, works of art, precious stones etc. “This indicates the discretionary nature of the consumption and hence cannot be categorised as productive consumption,” he says.
Srivastava of EY believes that for the recovery to be more broad-based the manufacturing sector needs to pick up more and attain its growth potential of over 8%.
Shukla says that while the actual GDP may have marginally crossed the figure of Q1 FY20, it has come after 7-8 quarters in the interim. “That deadweight loss may not be recovered,” he feels.
The Indian economy is definitely showing signs of emerging from the COVID-19 induced economic setback. High-frequency indicators such as IIP, PMI & core sector data also point to improvement in economic sentiment. However a sustained economic recovery will require all major sectors to bounce back to pre-pandemic levels.