Second wave damped hopes of recovery in Q1
The National Statistical Office, under the Union Ministry of Statistics and Programme Implementation, has released estimates of gross domestic product (GDP) for the first quarter of 2021-22. The headline year-on-year growth numbers, as the press note states, are “unduly high due to the low base”. It should be remembered that the equivalent quarter of the previous year, April to June 2020, was marked by a nationwide lockdown to control the spread of Covid-19, which caused a sharp and unprecedented decrease in output of over 24 per cent (at constant prices) as compared to the first quarter of 2019-20. The April-June 2021-22 quarter, by comparison, showed growth of 20.1 per cent for GDP at constant prices.
This headline number is broadly in line with expectations. However, it means that GDP in real terms is still lower than it was before the pandemic hit. The just concluded first quarter of FY22 was also when the devastating second wave hit the country. Although there was no nationwide lockdown this time around and many major supply chains remained intact, there has been some impact on the final figures. There is every chance that India might have to endure another wave over the coming months. Thus, the assumption should be that by the end of the year, the economy will return sustainably to the GDP levels last seen in 2019-20 or slightly higher. It is now clear that hopes for a “V-shaped” recovery must be revisited. A realistic expectation is that the pandemic and consequent policy measures will have cost India two full years of growth.
Growth momentum may have returned to the economy following the second wave, as is suggested by the official data on government revenues also released on Tuesday by the Controller General of Accounts. From April to July, 34.6 per cent of the budgeted receipts have been paid to the government. A look at the decomposition of the quarterly estimates also provides similar grounds for optimism. Some core sectors, such as power and construction, are showing considerable momentum — as are other indicators such as the sale of commercial vehicles and steel consumption. The course of the economy will clearly depend therefore on how well this recovery can be sustained and on whether another wave of the virus could dent it. The outlook for the medium term is therefore uncertain. Little can also be said about the long-term post-pandemic strength of the economy, and the degree to which pandemic scarring has reduced the country’s potential growth.
For the near term, however, grounds for optimism might be suggested by the vaccination programme, which has covered considerable ground, especially in the high-output parts of the country. More than half the eligible population have now received at least one vaccine dose, with that proportion much higher in metropolitan centres like Mumbai and Delhi. As the 18-45 age group receives its second dose in these areas, they are only a few weeks away from fairly high levels of community protection. Thus, another increase in infection will have a more limited effect on hospitalisation, mortality, and output. Although India has lost precious years, light is visible at the end of the tunnel.