OTHER GROUP COMPANIES
market

Q2 GDP up 8.4% with a trade and services boost

The second piece of good news is that the absolute GDP is finally getting beyond the corresponding 2019 levels; indicating that the deleterious impact of COVID-19 may be finally wearing off.

December 01, 2021 5:00 IST | India Infoline News Service
After 2 quarters of negative GDP growth in Jun-20 and Sep-20 quarters, GDP growth has stayed in positive for 4 consecutive quarters now. From 0.4% in Dec-20 quarter to 1.6% in Mar-21 quarter to 20.1% in Jun-21 quarter and finally to 8.4% in Sep-21 quarter; GDP is showing signs of recovery.

The second piece of good news is that the absolute GDP is finally getting beyond the corresponding 2019 levels; indicating that the deleterious impact of COVID-19 may be finally wearing off. Real GDP for the Sep-21 quarter is up 8.4% over last year, and it is finally 0.38% above the levels of GDP achieved in the Sep-19 quarter. It looks like the jinx of COVID deceleration may have been hopefully broken.

Data Source: NSO (MOSPI)

The GDP for the second quarter ended Sep-21 has come in exactly as per the Reuters poll of economists, which had pegged growth at 8.4%. This is a good 50 bps above the RBI estimates for the second quarter at 7.9%. The big themes of Q2 GDP were the sustenance of the trade advantage and a revival in select services.

A quick word on the inflation impact on real GDP

Real GDP, as is well documented, is Nominal GDP adjusted for inflation factor. When we talk of 8.4% growth in GDP, we are referring to real GDP and not nominal GDP. However, nominal GDP is significant as it depicts economic activity in absolute terms and the potential of the Indian economy to create jobs. Here are the real and nominal GDP numbers.

Real GDP for Sep-21 quarter stood at Rs35.73 trillion compared to Rs32.97 trillion in the Sep-20 quarter, representing yoy GDP growth of 8.4% for Q2. However, in Sep-20 quarter, the GDP had contracted by -7.4% due to impact of COVID. If you take Real GDP for Sep-21 quarter and compare with Sep-19 quarter, the real GDP is +0.38% higher compared to Sep-19 quarter, finally growing above pre-COVID levels. Let us turn to the nominal GDP.

Nominal GDP for Sep-21 quarter stood at Rs55.54 trillion compared to Rs47.26 trillion in the Sep-20 quarter, representing nominal GDP growth of +17.5%. However, in the Sep-20 quarter, the nominal GDP had contracted by -4.4% due to impact of COVID. Hence if you take the Nominal GDP for Sep-21 quarter and compare with the Sep-19 quarter, then the Nominal GDP is higher by +12.33% over pre-COVID levels.
Here is a riddle! Why is Q2 real GDP for Q2 marginally higher than 2019 but nominal GDP sharply higher than 2019? The answer lies in inflation. The last 2 years saw higher inflation in consumer and producer goods, which is visible in CPI and WPI inflation. The inflation impact has been so significant in last 2 years that a +12.33% growth in nominal GDP tapered to just 0.38% growth in real GDP. In short, inflation played spoilsport and offset most of the nominal GDP gains over pre-COVID levels.

How did key GVA parameters pan out in Sep-21 quarter?

In the last few years, Gross Value Added or GVA has emerged as an important metrics of economic growth. GVA adjusts the GDP for the impact of indirect taxes and subsidies to give a clearer picture of output. Check the table below


Sector Sep-21 Q1 over Sep-20 Q2 Sep-21 Q1 over Sep-19 Q2
Agricultural, Forestry, Fishing +4.5% +7.6%
Mining & Quarrying +15.4% +7.9%
Manufacturing +5.5% +3.9%
Power, gas, water supply +8.9% +11.4%
Construction +7.5% -0.24%
Trade. Hotels, Transport +8.2% -9.2%
Financial, Real Estate +7.8% -2.0%
Administration, Defence +17.4% +6.6%
Data Source: NSO (MOSPI)

In the Jun-21 quarter, only 2 out of 8 components of GDP showed positive growth over the Jun-19 quarter while in Sep-21 5 out of 8 components showed positive growth over Sep-19 quarter. Construction is flat so negative growth is an issue only in hotels, real estate and financial services. The real redeeming feature from the above table would be the sharp 3.9% revival in manufacturing over pre-COVID levels, even as agricultural continues to be the consistent growth engine for economic growth.

Sep-21 GDP was about trade and select services

In the Jun-21 quarter, we saw the stellar role played by overall trade in economic growth. That story has continued in Sep-21 quarter but services have also contributed as highlighted by the Reuters poll of economists, ahead of the GDP announcement. Here are some important high-frequency indicators.

Principal Indicator Q2 growth over Sep-20 Qtr. Q2 growth over Sep-19 Qtr.
Rice Production -3.3% 0.47%
Coal Dispatches +15.7% +21.9
Cement Production +22.3% +9.3%
Steel Consumption -0.8% -8.0%
Exports of Goods & Services +29.9% +29.6%
Imports of Goods & Services +54.1% +28.1%
Data Source: NSO (MOSPI)

One of the reasons steel consumption has tapered over 2019 is the weak demand from the auto sector due to production cuts. However, coal and cement dispatches are robust and made up for any shortfall in steel output. But the real story remains trade.

The contribution of exports to GDP has gone up from 19.4% in the first half last year to 21.7% in first half of current year. During the same period, the share of imports in GDP is up from 18.0% to 23.6%. For now, trade is leading the GDP revival for India.

OPEN A DEMAT ACCOUNT & Get FREE Benefits worth 10,000

OPEN A DEMAT ACCOUNT & Get
FREE Benefits Upto 10,000

STOCK VIEW

PRESTIGE (NSE)

The average score for Prestige Estates Projects Limited stands at 4 against 6, three months back.

Prestige Estates Projects Limited is engaged in the business of real estate development. The Company’s principal products/services include Development and construction

FEATURED ARTICLE

BLOGS

Open ZERO Brokerage Demat Account

  • 0

    Delivery Brokerage for Lifetime

  • 20

    Per order for Intraday, F&O, Currency & Commodity