OPINION: India’s economy may be growing faster than expected as the second wave of the pandemic was less damaging than most had feared

• There is more than the optics of the low base effect in India’s GDP growth data for April-June 2021.
• Emkay Global has raised the estimated GDP growth for the full year ending March 2022 to 10.1%.
• The economic growth between April and June 2021 was close to the consensus estimates.
• The gross value added growth was led by robust manufacturing and construction while services bore the brunt of the second wave of the pandemic.
  
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Factors such as better-adapted firms and policy response, stable financial conditions and robust global growth spillovers have created growth buffers back home. The catch up in the vaccine drive will further help the delinking between mobility and virus proliferation ahead and aid the pick-up in contact sensitive services sector.

Metric	April-June	Emkay Global estimate
April-June GDP	20.1%	21.3%
April-June GVA	18.8%	19.2%
April 2021 - March 2022 estimate	-	10.1%

We revise up our GDP growth to 10.1% but it may still be around 5-6% lower than the pre-pandemic expected growth path. We reckon the nascent recovery ahead may partly still be led by capital and profits and have traces of scarring and segmented labor market and sub-optimal effective fiscal policy stimulus.

Sector	April-June 2021 GVA growth
Manufacturing	49.6%
Construction	68.3%
Private sector	25.2%
Utilities	14.3%
Agriculture	4.5%

GVA: Gross value added

However, exogenous demand drivers, in the form of exports and sustained government capex, will need to create a growth bridge till private investment and consumption recover to optimal levels.

To policymakers’ credit, a public investment push appears key to their growth revival strategy. Policy support, in the form of physical and social infra outlays, will have a large multiplier effect on jobs (even for the bottom of the economic pyramid) and, eventually, catalyse private investment.

This, in conjunction with initiatives like sustained privatisation, tax reforms, expenditure re-alignment will likely create fiscal space to fund public investment.

However, the sustainability of the recovery needs to be monitored, especially as it might partly be led by capital and profits. It may have traces of scarring and segmented labour markets.

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