India’s real GDP expanded by 20.1% in Q1 FY22 on distorted base: ICRA

India’s real gross domestic product (GDP) expanded by a record-high of 20.1 per cent in year-on-year (YoY) terms in the first quarter of this fiscal (Q1 FY22) in line with rating agency ICRA’s forecast of 20 per cent. But the sharp expansion is analytically misleading as the real GDP in Q1 not only posted a sequential slowdown of 16.9 per cent over Q4 FY21, but also trailed the pre-COVID level of Q1 FY20 by a considerable 9.2 per cent.

As anticipated, the distorted base of last year’s stringent nationwide lockdown obscured the impact of the second wave of COVID-19 that was accompanied by staggered state-wise restrictions in Q1 FY22, ICRA said in a press release.

Gross value added (GVA) at basic prices displayed a YoY expansion of 18.8 per cent in Q1 FY22, exceeding ICRA’s forecast of 17 per cent. This was driven by industry and services.

The GVA growth of agriculture, forestry and fishing was healthy at 4.5 per cent in Q1 FY22, with a robust rabi harvest. The GVA trailed the pre-pandemic level by 7.8 per cent, led by all the sub-sectors except agriculture and electricity.

ICRA expects GDP growth in Q2 FY22 to be in between 7.8 per cent and 8.8 per cent, with the absolute GDP trailing the pre-pandemic level on account of a delayed recovery in the services sector.

ICRA also expects real GDP to exceed the pre-pandemic levels in the second half of FY22, with the extent of the upside to be dictated by whether the recent acceleration in vaccine administration is sustained.

A potential third wave, and whether the existing vaccines are able to protect against any new variant that might emerge, remain key risks.