India posts strong recovery in GDP at the end of 1Q22

Quarterly GDP growth numbers for the Indian economy were released yesterday. The actual growth number came at 20.1% annualized growth YoY as against an expected figure of 18%.

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The graph above is not a good chart layout. Absolute GDP figures would have better suited the above chart. The real reason for such spectacular growth is the base effect. Last year, during the same quarter, the entire Indian economy was shut due to lockdown. Economic activity in most sectors came to a standstill and the contraction in the economy was reported at 24.4%. Another factor is that during the first quarter, India witnessed a peak in the second COVID wave and lockdowns were not as severe this time as during the same quarter last year.

For the above reasons, one can say that what is being touted as the best growth figure in India's history is not a big feat. In fact, India is still below the pre-pandemic GDP levels in absolute terms.

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Very few major economies have been able to recover the GDP loss thanks to the pandemic -

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A number of positives were reported along with the GDP figures. Power demand shot up, GST collections have risen to respectable levels, and sectors such as consumer retail, farm, construction, exports, and auto reported positive economic growth. In fact, many auto majors are reporting that auto sales have revived and are showing signs of stability.

While there is tremendous room for improvement, the good thing is that India has come closer to pre-pandemic GDP levels, despite seeing a peak of COVID cases during the first quarter of FY2021. This implies that COVID has been less of an economic risk than one would have considered. With vaccinations underway, a third wave may have a less economic impact in the near future. The equity benchmarks are at all-time highs. The main risks to the economy remain potential unknown virus variants and rapid withdrawal of liquidity. Invest with caution, as always.

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