India’s gross domestic product (GDP) surged 20.1 per cent in the April-June quarter of FY22, its best-ever fiscal-quarter numbers. GDP at constant (2011-12) prices in Q1 of 2021-22 is estimated at Rs 32.38 lakh crore, against Rs 26.95 lakh crore in Q1 of 2020-21, showing a growth of 20.1 per cent.
GDP = GVA (gross value added) plus taxes, minus subsidies. Put differently, GDP = C + I + G + NX, where C stands for household consumption, I for investment, as in private final consumption expenditure (PFCE), G for government spending, also called government final consumption expenditure (GFCE), and NX for net exports, after subtracting imports. The best part about the 20.1 per cent GDP surge is the fact that PFCE or gross fixed capital formation (GFCF) rose by a massive 55.3 per cent, showcasing creation of productive capital stock in the economy, with more being invested than consumed.
As a thumb rule, if the government earns more from taxes than what it spends on subsidies, GDP will be higher than GVA. If, on the other hand, the government provides more subsidies than the tax revenues earned, GVA would be higher than the absolute level of GDP. In first quarter of current financial year (1QFY22), India’s GDP grew by 20.1 per cent, year on year (YoY), while the GVA grew by 18.8 per cent. It is true that GDP and GVA had contracted by 24.4 per cent and 22.4 per cent, respectively, in Q1 of the last financial year. So did a low base effect from last year play a role in the stellar 20.1 per cent figure that was reported? Well yes, but only partially.
Critics of Modinomics never gave the Narendra Modi government credit for a high base effect, when the growth numbers were tepid. By the same logic, how can these armchair, doomsday peddlers now discredit the solid 20.1 per cent GDP growth reported for the June 2021 quarter? The moot point is that with real GDP growth of 20.1 per cent in 1QFY22, more than 90% of the pre-pandemic output and private consumption stand recouped. On the supply side, recovery of pre-pandemic levels is most significant in the agriculture and allied sectors, which have reported a 108.2 per cent jump in Q1 of FY22, than in Q1 of FY21. The manufacturing sector is almost completely at pre-pandemic levels, having attained 96 per cent of pre-pandemic output.
Index of Industrial Production (IIP) data showed that mining, manufacturing and electricity generation have all expanded in double digits in the June quarter. Capital goods output has shown 110 per cent growth while consumer durables grew by 132.6 per cent in the June quarter compared to last year. Merchandise exports grew 45 per cent y-o-y in August to $33.14 billion. Industrial output has jumped 45 per cent in the April-June period of this fiscal (FY22).
The revival in consumer demand is visible with household consumption going up by 19 per cent in 1QFY22 compared to contraction in FY21. Pick-up in construction by 68 per cent also shows signs of strong green shoots. India’s merchandise exports in July 2021 were $35.17 billion, an increase of 34 per cent over July 2019. Merchandise imports also shot up to $46.4 billion, the second-highest so far, in July 2021, driven by non-oil imports, which bodes well. The Modi government has set a merchandise exports’ target of $500 billion for FY23 and $1 trillion in the next five years, which is commendable and achievable, given the outstanding trajectory; the June quarter exports this year at $95 billion are the highest in a single quarter. In August, exports rose by 45.17 per cent to $33.14 billion, with April-August exports at $164 billion, a massive rise of almost 67 per cent YoY.
Total consumption is at Rs 22.05 lakh crore in 1QFY22, which is 13.8 per cent higher than the same period in 1QFY21. It is also 91.2 per cent of the level in Q1 of FY20. Of this, government consumption is Rs 4.2 lakh crore, which is 107.4 per cent of what it was in Q1FY21. Capital formation has also grown to Rs 10.22 lakh crore, which is 55 per cent higher than last year and is 83 per cent of pre-pandemic levels. Exports were at Rs 7.7 lakh crore in Q1 of this financial year, which is higher not only than last year’s Rs 5.53 lakh crore by 39 per cent, but also higher than pre-pandemic levels by 8.7 per cent. The agriculture sector has witnessed strong growth of 4.5 per cent to Rs 4.9 lakh crore in Q1 of this financial year. The size of the sector is larger than it was in the pre-pandemic period by 8.2 per cent. The mining and quarrying sector at Rs 81,444 crore is 18.6 per cent larger than it was in Q1FY21 and is 98 per cent of its size in Q1 of FY20.
The manufacturing sector at Rs 5.4 lakh crore in Q1 of this year is nearly 50 per cent larger than it was Q1 of FY21. It has also reached 96 per cent of its pre-pandemic levels. Financial, real estate and professional services stood at Rs 7.9 lakh crore in Q1 of this year, which is 3.7 per cent higher than in Q1FY21 and 98.5 per cent the size it was before the pandemic struck. Following a dip in June 2021 due to the regional lockdowns, GST collection again rebounded to above Rs 1 lakh crore in July 2021—at Rs 1.16 lakh crore. Average collection this financial year currently stands at Rs 1.13 lakh crore, which is the highest average since GST was implemented in 2017. Since October 2020, GST collection has been in excess of Rs 1 lakh crore every single month for 11 months in a row, barring June 2021. Average daily e-way bill generation was 20.2 lakh in the week that ended July 25, compared to 20.4 lakh in the preceding week and 19.24 lakh in the first 11 days of July. More than 5 crore e-way bills were generated in July 2021.
PMI (purchasing managers’ index) manufacturing also moved back up, following a temporary dip, coming in at 55.3 in July 2021. Indian Railways has achieved the highest-ever incremental freight loading of 17.54 million tonnes (MT) in July 2021, an increase of 18.43 per cent over July 2020, with total freight loading of 112.72 MT, as against the earlier best of 99.74 MT in July 2019 and 95.18 MT in July 2020. E-way bill generation picked up pace in July, indicating a gradual uptick in economic recovery. In the first 25 days of July, average daily e-way bill generation stood at 19.83 lakh, 8.8 per cent higher than the average for June and 54 per cent higher than the May level.
The country’s infrastructure output as measured by the Index of Eight Core Sectors rose 8.9 per cent in June and 16.8 per cent in May 2021.The July number was 9.4 per cent. Domestic tractor sales grew 18.9 per cent in June 2021. India’s infrastructure output, which comprises eight sectors including coal, crude oil and electricity and accounts for nearly 40 per cent of industrial output, rose by 25.3 per cent YoY in the first quarter of FY22. In a first, Indian tractor industry crossed 1 lakh tractor sales in June this year. The outlook remains positive for the months ahead as the monsoon progresses favourably, which could lead to increased tractor demand and government sops such as direct benefit transfers.
According to the Ministry of Railways, with Indian Railways freight loading 451.97 million tonnes in the ongoing financial year of 2021-22 as against 336.74 million tonnes up to July 2020, the national transporter has also witnessed the highest cumulative incremental loading of 115.23 million tonnes—a 34.22 per cent rise over the same period last year in FY21. The cumulative performance of Indian Railways’ freight loading has seen solid growth over the same period last year in iron ore at 18.07 million tonnes (43.88 per cent), cement 15.01 million tonnes (52.91 per cent), coal 55.83 million tonnes (37.11 per cent), and the rest of the other goods 10.45 million tonnes (38.42 per cent).
As per the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2021 (WIR), India became the fifth largest recipient of foreign direct investment (FDI) inflows in the world in 2020. Gross FDI inflows have been estimated at $32 billion in the first five months of the calendar year 2021 (January to May), which is close to 37 per cent of the entire inflows in 2020. A CRISIL Ratings study of 43 sectors (accounting for 75 per cent of the Rs 36 lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based. As many as 28 sectors (85 per cent of outstanding corporate debt under study) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while six will see an increase upwards of 85 per cent.
A surefire sign that recovery is happening is when ratings agencies start making more ratings upgrades than downgrades. This means companies’ financials are improving and growth is happening. Among sectors with the most rating upgrades, construction, engineering and renewable energy benefitted from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both domestic and export growth. Besides regulatory relief measures, a secular deleveraging trend has provided India Inc. the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to 0.8x at the end of fiscal 2020 and then to an estimated 0.7x in fiscal 2021, from 1.1x in fiscal 2016.
The financial sector is also better placed today than a year ago, given less stringent lockdowns and the systems and processes put in place to manage collections amid the restrictions. Support from the government and the RBI through emergency credit lines, moratorium and one-time debt restructuring for pandemic-affected companies have helped banks and non-banks in curbing a rise in non-performing assets (NPAs). Credit profiles in the financial sector have been supported by higher capitalisation levels, better provisioning cover and increased access to liquidity.
The first half of this calendar year has seen fresh investments of $11 billion in Indian startups, with 20 new unicorns making their mark in the last seven months. The Indian startup ecosystem is now the third largest in the world. The number of startups recognised by the Department for Promotion of Industry and Internal Trade has crossed 50,000 and is spread across 623 districts in India. Nearly 1.8 lakh formal jobs have been created by 16,000 startups, which were recognised in the last financial year. Indian startup ecosystem is valued at over $240 billion. Once these startups achieve scale, they will be the fuel to power India’s growth trajectory. They are the lynchpins of tomorrow’s business ecosystem. That several of them have started to consider getting listed is an additional positive. Many of these listed startups will eventually create wealth for not just their founders but also their employees and retail investors.
Zomato, a loss-making food delivery company, managed a market valuation of around Rs 1 lakh crore almost immediately on listing last month. Byju’s is valued at over $15 billion. Names the Indian public had not heard of till recently are now worth more than a billion dollars each. They include a diverse set of companies using digital technology to grow customers and operational scale. BharatPe, Cred, UpGrad, PayTm, Urban Company, Zeta, Meesho, Groww, Droom, Gupshup, CoinDCX and MindTickle are just some of the names that have emerged as billion-dollar and multi-billion dollar companies. The highest-ever FDI inflow of $82 billion was clocked in the last financial year FY21. India Inc’s deal activity went up 3 per cent to $13.2 billion in July.
The various relief packages of the Narendra Modi government ensured that essential food and cash was delivered to those who needed it, while also ensuring that MSMEs received adequate flow of funds and credit to withstand the initial shock and also stand up once the pandemic receded. The fact that GDP growth moved from a contraction of 24.4 per cent in Q1FY21 to a growth of 1.6 per cent in Q4FY21 to a resounding growth of 20.1 per cent in Q1FY22 shows how effective the various stimulus packages of the government were in stabilising the economic shock and moving the economy back onto a robust growth path.
Does all this mean that India is on the path to a V-shaped recovery? The lofty increases in GDP and GVA are in percentage terms and while they look good some naysayers claim that these numbers are merely a statistical illusion created by the very low base in Q1 of last fiscal. In times of massive crises, it is always better to look at the absolute levels to assess the state of an economy’s health. Percentage changes work well in normal times, is what the doomsday purveyors claim. Well, no one disputes the fact that absolute numbers are indeed relevant. Equally, let no one forget that in 2020, the world, including India, was in the grips of a debilitating pandemic, the worst-ever witnessed by mankind in over a 100 years. When the world fell, India fell too but the fall in India’s GDP was far lower than global peers. Don’t forget that in February 2020, India had overtaken the UK to become the fifth biggest economy globally, after having overtaken France to become the sixth largest in 2019. Also, now that things are looking up, India is outperforming again, with the expansion in India’s GDP far superior to comparable global peers.
The India Services Business Activity Index, compiled by IHS Markit, stood at 56.7 in August 2021 compared to 45.4 in July. The Composite PMI Output Index too rose to 55.4 in August from 49.2 in the preceding month. Data suggests the handsome GDP growth in June quarter in the ongoing fiscal year is a precursor to a vibrant, full-blown recovery, going forward. Prime Minister Narendra Modi’s vision of an Atmanirbhar Bharat is coming to fruition.
Sanju Verma is an economist, national spokesperson of BJP and bestselling author of “Truth& Dare—The Modi Dynamic”. The views expressed in this article are those of the author and do not represent the stand of this publication.
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