A 32% growth figure in first quarter of FY’22 should calm frayed nerves

A double digit growth figure is certainly a head turner and something that is sure to bring a lot of cheer after a series of grim statistics last fiscal.

Estimates of growth for the first quarter gyrate between a low of 14.2% to as high as 23.3%. The RBI has projected a growth of 21.4% in the first quarter. The impact of the local lockdowns imposed by different states to limit the impact of the second wave of the coronavirus is certainly going to shave some of the exuberance off the growth figures. How much that would be will be clear on August 31.

But caution will be the key in interpreting the number as the economic performance in the April-June quarter will come on the back of a very low base. The massive contraction in the first quarter of the last fiscal is sure to give the economy a lift off in Q1 of FY’22.

A 14% growth rate in Q1 will mean that the size of the economy has expanded to Rs 30,72,780 crore from Rs 26,95,421 crore in the same quarter of last year. But if we compare this number with the first quarter of FY’20, then the economy shows a contraction of 13.8%. A 23% growth figure will mean that the economy has expanded to Rs 33,15,368 crore. When we compare this number with the first quarter of FY’20, the economy shows a contraction of 7%.

Even the most optimistic estimates

would mean that the economy has contracted if compared sequentially to the preceding quarter.

So, what should be the ideal growth figure that calms the frayed nerves? A number that helps put things in perspective. A rebound that is more meaningful rather than a statistical deception. For that a comparison with the first quarter of FY’20 instead of FY’21 makes more sense.

The economy would have to grow at around 32.3% in Q1 of FY’22 if it has to reach the same level of output that it had in the first quarter FY’20. That would have been possible had the second wave of the pandemic not struck at a time when the economy was showing strong signs of rebound. The economy grew by 1.6% for Q4 of FY’21 after showing contraction for the first two quarters and turning slightly positive in Q3.

The silver lining is that the localised impact of the lockdowns may not have dented the economic performance in Q1 of the current fiscal to the extent that was visible last year when the national-level clampdown resulted in widespread losses.

Also, high frequency indicators are showing signs of revival. GST collections are back to over Rs 1 lakh crore in July and e-way bill generation shows business picking up momentum. The PMI in manufacturing also recovered in July and rose to a three-month high of 55.3.

Kerala’s daily case count is rising and contributes more than half of the national tally. This should ring alarm bells even as people in other states lower the Covid guard.

India’s vaccination rate will have to pick up further to avoid another debilitating virus wave from hitting us and for a faster return to economic normalisation.

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