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Real GDP grows 20.1% in Q1FY22 on low base, economy still 9% smaller than in Q1FY20

* Real GDP grows 20.1% y/y in Q1FY22; economy still smaller than pre-Covid level: India’s real GDP grew 20.1% y/y in Q1FY22, moderately below our expectations. While this is the highest quarterly growth of real GDP in 2011-12 series, the number should be interpreted carefully as it was mainly due to low base. In Q1FY21, real GDP had contracted 24.4% to Rs 26.9trn due to Covid-19 related national lockdown. While in Q1FY22 real GDP increased 20.1% to Rs 32.4trn, the economy is still smaller than its preCovid level. In Q1FY20 and Q1FY19, real GDP stood at Rs 35.6trn and Rs 33.8trn respectively. Hence, in Q1FY22 real GDP is ~9% smaller than in Q1FY20 and even 4% smaller than in Q1FY19. This shows the deep scars left by the pandemic on the economy.

* Nominal GDP grows 32% y/y in Q1FY22; surpasses pre-Covid level: In nominal terms, GDP grew 31.7% y/y to Rs 51.2trn. Interestingly, nominal GDP in Q1FY22 has surpassed its level in Q1FY20 and Q1FY19 by 2% and 12% respectively. This shows that in nominal terms, the economy in the first quarter is the biggest it has ever been so far. The divergence between real and nominal GDP comparison to its pre-pandemic level is due to inflation. GDP deflator in Q1FY22 stood at 9.7%, its highest level in 2011-12 series. While high inflation took nominal GDP in Q1FY22 past its pre-pandemic level, in real terms it made the economy smaller than pre-Covid level.

* Real GVA grows 18.8% y/y; core GVA grows faster at 25% y/y: Real GVA grew 18.8% y/y in Q1FY22, marking the highest quarterly growth in 2011-12 series. The wedge between real GVA and real GDP growth widened to 140bps, the highest since Q4FY18. The reason for widening wedge between GVA and GDP is the strong growth in net taxes. Real net taxes, as reported in the GDP press release, recorded a robust growth of 47% y/y in Q1FY22. As per CGA data, the government’s gross tax revenue in Q1FY22 stood at Rs 5.3trn, up 97% y/y from Rs 2.7trn collected in Q1FY21. Core GVA (excluding agriculture and public admin) grew at a much faster pace of 25% y/y in Q1FY22. This highlights the fact that low growth in public admin of just 5.8% y/y played a drag on headline growth numbers.

* In Q1FY22, manufacturing, construction and trade sectors drive growth: In Q1FY22, sectors which contracted the most during Q1FY21 expectedly recorded strongest growth. Construction sector grew 68% while manufacturing and trade sectors grew 50% and 34% respectively. These three sectors collectively accounted for 81% of the growth in real GVA during Q1FY22 and Q1FY21. However, construction, manufacturing and trade sectors are still 15%, 4% and 30% smaller than their Q1FY20 levels. As a whole, only agriculture sector is 8% larger than its pre-Covid level in Q1FY22. By contrast, industry as a whole is 6% smaller in Q1FY22 than Q1FY20 while the more contact-intensive services sector is 12% smaller in Q1FY22 than in Q1FY20.

* Private consumption grows 19.3%; real GFCF crosses Rs 10trn mark again: From the expenditure side, real private consumption grew 19.3% y/y to Rs 17.8trn. Government consumption, on the other hand, contracted 4.8% y/y to Rs 4.2trn. As a result, real consumption expenditure as a whole grew 13.8% y/y. Real GFCF grew 55.3% in Q1FY22 albeit on a low base of -47% in the corresponding quarter last year. Real GFCF now stands at Rs 10.2trn, sharply up from Rs 6.6trn in Q1FY21 but still lower than the pre-pandemic level of Rs 12.3trn. Consequently, nominal investment rate now stands at 27.2%, up from 20.7% in Q1FY21 but much lower than pre-pandemic average of 30%.

* Full year FY22 growth forecast unchanged at 9.5%; third wave of Covid-19 biggest risk: Despite Q1FY22 growth numbers coming in moderately lower than our expectation, our growth forecast for FY22 is unchanged at 9.5%. The biggest risk to economic growth at this point is a possible third wave of Covid-19 in Sep-Oct 2021.

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