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India's GDP is expected to grow by 20 per cent on a year-on-year basis in Q1FY22, ratings agency ICRA said on Wednesday.

It also expects the gross value added (GVA) at basic prices at constant 2011-12 prices at 17 per cent in Q1FY22.

The ratings agency said that the trend has been supported by healthy Central and state government capital spending, robust merchandise exports and resilient demand from the farm sector.

It also said that muted base of last year's nationwide lockdown has aided in concealing the impact of the second wave of Covid-19.

"Based on our assessment of volumes and available earnings, we have forecast the GVA expansion in industry at a considerable 37.5 per cent in Q1 FY2022, led by construction and manufacturing, which experienced significantly less curbs in the just-concluded quarter compared to the situation during last year's stringent nationwide lockdown," ICRA's Chief Economist Aditi Nayar said.

"In particular, construction activity benefitted from the healthy Central and the state government capex spending in Q1 FY2022, which exceeded even the pre-Covid levels of Q1 FY2020."

The GoI's capital expenditure and net lending stood at Rs 1.1 trillion in Q1FY22, a YoY growth of 27.6 per cent, and a sharp 78.4 per cent higher than Q1 FY2020, when the model code of conduct was in place during the parliamentary elections.

"With a contraction in the GoI's non-interest, non-subsidy revenue expenditure and continued impairment in demand for contact-intensive services, we expect the GVA in the services sector to post a relatively lower, albeit double-digit expansion of 12.7 per cent in Q1 FY2022."

"The GVA growth in agriculture, forestry and fishing is likely to print at 3 per cent, benefitting from the healthy rabi harvest. Despite the higher incidence of Covid-19 cases in rural India in the second wave, healthy crop output and procurement, as well as higher minimum support prices appear to have buffered the farm sector's demand during this challenging period."

According to Nayar, the overall GVA growth in Q1FY22 to be as high as 17 per cent.

"Given the sharp rise in the indirect taxes, we anticipate that the National Statistics Office (NSO) may peg the GDP expansion at a relatively higher 20 per cent for Q1FY22."

"In our view, the GVA growth provides a better gauge of the economic performance than the GDP in the current year."