Why Should India's GDP Be Compared With The Previous Quarter's Data?

India's economic growth in the gross domestic product (GDP), was recorded at 8.4% in Q2, FY22. GDP had contracted by 7.4% in the corresponding Q2, Fy21, according to data released by the National Statistical Office (NSO). This YoY growth rate has been quite good mostly due to the waning low base effect. In the last year, during Q2, the Covid pandemic was at its peak and impacted the country's manufacturing and service sector largely. So, the GDP data came out crushing all expectations badly.

India's GDP only started to recover since the last quarter, this fiscal. The GDP growth in the April-June quarter, FY 22 stood at 20.1%, while the Indian economy had contracted by 24.4% in April-June, FY 21. So, if the present GDP growth of Q2 needs to be compared, it should be measured beside the Q1, FY22 GDP data, when the economy started to recover.

Intensified vaccination drive and eased lockdown measured helped the manufacturing sector to boost, as people started to go out for their jobs. Construction sites regained pace with a better workforce, and the improved travel and logistics sector pumped up the production system.

According to an official statement, "GDP at Constant (2011-12) Prices in April-September 2021-22 (H1 2021-22) is estimated at Rs. 68.11 lakh crore as against Rs. 59.92 lakh crore during the corresponding period of the previous year, showing a growth of 13.7% in H1 2021-22 as against a contraction of 15.9% during the same period last year, it stated." The Ministry of Statistics and Programme Implementation stated, "GDP at Constant (2011-12) Prices in Q2 2021-22 is estimated at Rs. 35.73 lakh crore, as against Rs. 32.97 lakh crore in Q2 2020-21."

The government has also reported a well-poised sectoral growth; the manufacturing sector increased 5.5% in Q2, while construction grew 7.5%. The agriculture sector also continued to increase at 4.5% in Q2, whilst the mining and quarrying grew at 15.4%.

In addition to that, India's growth in the Q2, FY22 has been promising even in the global context, as China has recorded a growth of 4.9% in the same quarter, this year.

(Also read: Output Of 8 Core Sectors Increased By 7.5% In October)

However, India's GDP was declining for the last 5 years consistently, and the pandemic only worsened the situation last year. To get a better momentum of growth rate on the domestic front, the union government and the monetary policy-makers will have to be more focused on better manufacturing output and employment growth.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, "Investment growth remained strong even when compared to 2QFY20 (pre-Covid) levels. Growth should remain fairly well supported in 3QFY22 too on account of festive season and opening up of services sector too. Growth remains well on track for a full year growth of around 9.5%. The growth numbers will unlikely play a differentiating factor for the RBI's policy with its own estimate being at 7.9%. With a new Covid variant starting to spread globally and uncertainty on its impact on the economic scenario, the RBI would possibly wait for some more clarity before moving decisively on the rates. We maintain our call for a reverse repo rate hike in February with the December meeting remaining a close call."

Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services stated, "Nevertheless, the broad story remains intact. With a weak household sector, consumption may continue to lag. Accordingly, we believe that real GDP growth could be 5-5.5% in 2HFY22, implying full-year FY22 growth of ~9% or just 1% higher than in FY20."