GDP to expand by deceptively high 20% in Q1, to be lower than pre-COVID levels: Icra

The GDP growth is estimated to come at the “deceptively high” level of 20 per cent for the April-June 2021 quarter but is far below the same in the pre-COVID times, rating agency Icra said on Wednesday. Icra said the low base of the last year, when the GDP had contracted by close to 24 per cent, “conceals” the impact of the second wave of COVID-19 infections.

Economic activity is boosted by robust government capital expenditure, merchandise exports and demand from the farm sector, it said, estimating the GDP to grow by 20 per cent and the gross value added (GVA) will register a growth of 17 per cent for the June quarter. The GVA is estimated to contract 15 per cent when compared to the preceding March quarter, which shows the impact of the second wave.

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“The double-digit expansion expected in YoY terms in Q1FY22 is deceptively high, as it benefits inordinately from last year’s contracted base. We forecast GVA and the GDP to have shrunk by around 9 per cent each in Q1FY22, relative to the pre-Covid level of Q1FY20, highlighting the tangible distress being experienced by economic agents in the less formal and contact-intensive sectors,” its chief economist Aditi Nayar said. The RBI expects the GDP to expand by 21.4 per cent in the quarter as per its revised estimates released earlier this month. The official data on economic activity from the central statistics office is expected by end of the month.

Nayar said based on its assessment of volumes and available earnings, it is forecasting a GVA expansion in industry at a considerable 37.5 per cent, 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. 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 FY20, she said.

With a contraction in the Government of India’s (GoI’s) non-interest non-subsidy revenue expenditure and continued impairment in demand for contact-intensive services, the agency expects GVA in the services sector to post a relatively lower expansion of 12.7 per cent in Q1FY22. GVA growth in agriculture, forestry and fishing is likely to print at 3.0 per cent, benefitting from the healthy Rabi harvest, it said.

“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,” she said. The rating agency cautioned that the organised sector is expected to have gained at the cost of the less formal space during this period. The available statistics are often unable to capture the pain experienced by the latter, which may result in an overestimation of growth under the present circumstances, it added.