India's GDP Growth Report

The annualized GDP growth for the Sep-21 quarter was announced, as usual, on the last working day of November. The real GDP growth came in line with Reuters poll of economists at 8.4%.

This is the third consecutive quarter of positive growth in GDP. In the Jun-21 first quarter, the GDP was up over 20%, but that was largely on the low base effect.

The nominal GDP (the GDP before factoring in inflation) was up 17.5% compared to the Sep-20 quarter. A better way of looking at the GDP data is to look at the gross value added or the GVA.

The GVA is the GDP adjusted for the effects of indirect taxes and subsidies so GVA gives a much better picture of the growth in GDP output.

For the Sep-21 quarter, all the 8 major segments of GDP saw robust growth on a YoY basis. Agricultural growth remained robust at 4.5% while manufacturing improved to 5.5%.

Mining, quarrying led the way with 15.1% YoY growth in GVA. Unlike the Sep-20 quarter, all the service segments like construction, public utilities, financial services and real estate services saw solid growth in GVA in the Sep-21 quarter.

The overall GVA grew 8.5% in Sep-21 quarter and GDP grew at 8.4%. This is much better compared to a negative -7.3% contraction in GVA in the Sep-20 quarter.

What is more gratifying is that the GDP growth of 8.4% has been largely driven by the services sector and is a full 50 basis points higher than the RBI GDP estimates for Q2 at 7.9%.

One way to analyse the GDP shift is based on which components contributed to growth. Like in the first quarter, even in Q2, it is exports and imports that have made a big leap in contribution to GDP.

Between Sep-20 quarter and Sep-21 quarter, the share of total trade in GDP has gone up from 38% to 45%, clearly driving GDP higher in the process.

Let us also look at the GVA on a half yearly basis. For FY22, the GVA is up 13.2% as compared to a negative contraction of -14.9% in first half of FY21.

That means on a pre-COVID basis, the overall output is still -3.7% lower and that would be the data point that the policy makers must be looking at. Interestingly, for the first half, the share of trade in overall GDP has gone up from 41% to 50%, showing the important role trade has played in the economic revival.

The GDP data for Q2 also shows that most of the high frequency indicators like coal production, cement production, CV sales, cargo handled, air passengers, exports and imports are all sharply up YoY.

Clearly, while manufacturing continues to face supply chain constraints, it is the services sector that has filled the gap in a big way.

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