The much awaited data from the National Statistical Office on India’s Gross Domestic Product (GDP) numbers for the January to March quarter and for the year as a whole, has been better than the expectations. But then, there are concerns.
The economy grew by 1.6 per cent in the quarter and though the year saw an overall contraction of 7.3 per cent many experts were fearing worse and were therefore somewhat relieved. “The earlier expectation was that the economy will shrink a lot more,” says Mahesh Vyas, managing director and CEO of the Centre for Monitoring Indian Economy (CMIE), a leading research firm and an independent think tank. For, as he points out, “we all began the year 2020-21 with the expectation of 10 to 11 per cent contraction in the GDP numbers and the fact that we concluded the year with a contraction of 7.3 per cent means it turned out better than what was originally feared.”
Though, he says, the fast frequency indicators (like electricity consumption, railway freight movement, automobile production) did indicate that the last quarter (Q4) would do better and this did contribute to some recent scaled up expectations about how the quarter would perform.
The big question now is the coping up with the aftermath of the second wave of Covid-19 that was showing some upticks around February this year but then hit the country severely thereafter with the month of April proving to be the cruelest in terms of caseload and death. Though at an aggregate level the peak is behind us, the challenge will be to see how the economy thus walloped will emerge from the current quarter. Even if the next quarter is better, experts feel, there will arguably be enough catching up to do and lost ground to be covered.
“The challenge really is the current quarter and how this year pans out,” says Vyas. What will therefore need to be watched will be consumption and demand because jobs and incomes have been hit.
Infact, one of professors who has been studying India for a long time says, the GDP numbers also reflect elements of the underlying strengths of the economy, which perhaps has more to do with the business drivers than policy-push. The GDP numbers till March show that these have been quite robust and is evident from some of the leading financial institutions like some of India’s top banks recording record profits. The State Bank of India for instance, registered a net profit of Rs. 6,451 crore in Q4FY21 as compared to Rs.3,581 crore in Q4FY20, an increase of 80.15 per cent year-on-year. Or in the case of a leading private sector bank-ICICI Bank for example, seeing its profit after tax growing by 104 per cent year-on-year to 16,193 crore (US$ 2.2 billion) in FY2021 compared to 7,931 crore (US$ 1.1 billion) in the year ended March 31, 2020 (FY2020). HDFC Bank and other leading players also posted improved financial performance. How this and the rest of the momentum in the economy sustains will now apparently be watched closely.