The government released the GDP growth figures for the June quarter on Tuesday. There was a sharp jump of 20.1%, which was close to the average of 20%, estimated by Bloomberg polled economists. The issue is that although GDP growth may have recovered in a 'V' shape, the economy is well below pre-Covid levels on a quarterly basis.
The GDP in the June quarter of the financial year 2021-22 was Rs 32,38,020 crore, which was Rs 35,66,708 crore in the corresponding quarter of the financial year 2019-20. Due to the Covid lockdown, it was reduced to Rs 26,95,421 crore last year.
However, the government is upbeat about the strong data on GDP growth in the June quarter. It says that strong GDP data can become the basis for sustainable growth in the coming quarters.
On Tuesday, NITI Aayog Vice Chairman Rajiv Kumar had said that the GDP growth estimate can be increased in the coming weeks. He said that the government had paid special attention to increasing expenditure for asset creation. Its effect is visible now.
Now the question arises whether the level of GDP this financial year can go up from the level before Covid i.e. two years ago. According to Vidisha Ganguly, Chief Economist of CII, the answer can be yes. The figures for the first quarter are indicating that the GDP will go up slightly from the financial year 2019-20.
If growth of 9.8% is achieved in the financial year 2021-22, then the GDP will increase by 1.8% from the financial year 2019-20 and the economy will come above the level before Covid. The challenge will be to keep the growth in the range of 7-8% in FY 2022-23 and beyond.
Vidisha Ganguly says that many indicators are indicating that the economic condition will be better in the second quarter. Due to the absence of the third wave, cases of Covid infection have decreased and vaccination has increased. Monthly indicators like GST collection, digital transactions, e-way bills and railway freight are showing signs of accelerating growth.
The good thing this time was that the lockdown was not complete. Agriculture, construction, manufacturing and trade, transport and communication sectors performed better in the June quarter, but financial real estate and professional services underperformed.
According to Ganguly, domestic demand remained weak due to the restrictions of Covid in view of the second wave. But growth was supported by exports and investments, while government spending declined during this period. Exports are increasing as recovery accelerates with vaccination in developed countries. There have been strong export figures in the first quarter, which needs to be maintained.
If we talk about the GDP growth estimate for the current financial year, then the Reserve Bank (RBI) has given the figure of 9.5%. It had earlier estimated GDP growth to be 10.5%. According to the World Bank, India's economic growth rate can be 8.3% this financial year.
The International Monetary Fund (IMF) on July 27 had estimated India's GDP growth at 9.5%. In April, before the second wave hit, it had projected 12.5% economic growth for the current fiscal. However, for the fiscal year 2022-23, it raised its GDP growth forecast to 8.5% from 6.9%.
According to Economic Research of the Bank of Baroda, GDP growth can be 9.7% this financial year. According to Kotak Institutional Equities, the growth could be 9% but it says that if the third wave comes before the entire population is vaccinated, the growth momentum will suffer.
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