India Q4FY21 GDP: GVA Grew By 3.7%; GDP By 1.6% 

The Indian economy saw a recovery in the January-March quarter of 2021, before the second wave of the pandemic disrupted activity again. While gross value added in the final quarter of the fiscal year grew at a stronger pace than in the third quarter, the gross domestic product growth was subdued on account of past subsidy dues paid out in the fourth quarter.

GVA adjusts GDP for the impact of subsidies and indirect taxes. While the latter is a more popular measure of economic growth, the former is more representative of economic activity.

• GVA growth in Q4 FY21 was at 3.7% year-on-year.
• GVA for FY21 contracted 6.2% year-on-year.
• GDP in Q4 FY21 grew 1.6% year-on-year.
• GDP for FY21 contracted 7.3% year-on-year.

In its release, the government’s statistical department cautioned that “estimates are likely to undergo sharp revisions in due course, as per the release calendar.” Users should take this into consideration when interpreting the figures, it said.

A Bloomberg poll of economists had estimated fourth quarter GDP growth at 1% and GVA at 2.6%, while GDP for the full year was estimated to contract by 7.5%.

Economic growth improved in Q4 FY21, although the impact of the low base related to the onset of the nationwide lockdown in the year-ago quarter can’t be written off, said Aditi Nayar, chief economist at ICRA.

Saugata Bhattacharya, chief economist at Axis Bank, said GDP is the sum of GVA and indirect taxes, adjusted for subsidies. Indirect taxes and subsidies have increased this year, causing the wedge, he said.

Expenditure Trends

Expenditure trends show the strongest growth in government consumption expenditure.

• Private consumption, reflected in private final consumption expenditure, rose 2.7% in fourth quarter compared to a contraction of 2.8% in third quarter. For the full year, private consumption contracted 9.1%.
• Investments, as reflected by gross fixed capital formation, rose 10.9% in fourth quarter after rising by 2.6% in the previous quarter. Investments contracted by 10.8% for the full year.
• Government final consumption expenditure grew 28.3% in fourth quarter after contracting 1.1% in third quarter. For the full year, it rose by 2.9%.

Sectoral Trends

• Agriculture sector grew at 3.1% in fourth quarter compared to 4.5% in third quarter. The sector grew 3.6% for the full year.
• The mining sector contracted by 5.7% in fourth quarter compared to a contraction of 4.4% in the previous three months. Mining contracted by 8.5% annually.
• Manufacturing grew by 6.9% in fourth quarter compared to 1.7% in the previous three-month period. For the full year, the sector contracted by 7.2%.
• Construction grew 14.5% in fourth quarter compared to 6.5% in the preceding quarter. The sector contracted by 8.6% in the full year.
• Trade, hotel, transport, communication contracted by 2.3% in fourth quarter compared to a contraction of 7.9% in the previous quarter. Contraction for the full year was at 18.2%
• The financial services sector grew at 5.4% compared to 6.7% in the previous quarter. For the full year, the sector contracted by 1.5%.

Services is the largest component of our economy and that is still struggling, said Devendra Pant, chief economist at India Ratings & Research. The largest component in services — trade, hotels, transport and communication continues to languish as a majority of activities falling in this segment are contact intensive in nature, he said.

Therefore, the fate of this segment is quite closely related to the progress on vaccination and development of herd immunity in the Indian population, Pant added.

Q1FY22: Back To Bleak Outlook?

While the fourth quarter GDP data shows the economy was strengthening, the second wave of Covid infections will once again disrupt activity.

“With the onset of the second wave, the key aspects really are how would household income and consumption shape up, the impact on and thus the contribution from the rural economy this time and investment and lending behavior,” Sreejith Balasubramanian, economist – fund management, IDFC AMC said. “With exports alone insufficient to drive growth in the medium-term, demand visibility and thus a growth-cycle in employment and wages becomes critical.”

Watch a discussion analysing the Q4 GDP data below: