A < 3 min.read !

At the outset the figures convey elation.This performance amid the spill overs from the Russia-Ukraine War,rupee depreciation and high inflation ( much of it imported),rate hikes,crude hitting the roof,several economies struggling to showcase the strength, global uncertainties, is indeed commendable ! Also,China registered an economic growth of 0.4 % for April-June Quarter of 2022.The US registered a contraction of 0.6 % (as per second estimate ) in the second quarter.However, there is an urgent need to look into the data !

The GDP data released for Q1 of FY 23 needs some deep diving to understand the mixed feelings they reveal.Let us go ahead !

[Data for 2020-21 is deliberately omitted in the table as growth is always reported relative to the previous fiscal.Data for 2019-20 is deliberately included to gauge the progress relative to the pre pandemic year.]

The GDP for Q1 jumped by Rs.4.39lakh crore from the previous fiscal’s 32.46 lakh crore in the corresponding period ( ⇒ a growth of 13.5%).Appreciable !

However,the GDP in Q1 of this fiscal relative to Q1 of 2019-20 ( pre pandemic year) jumped by a mere 1.37 lakh crore ( ⇒ a growth of 3.9%). In other words,while in one year the GDP grew by 13.5% ( albeit with low base effect) it grew by only 3.9% after three fiscal years.This reveals that the economy has come out from the clutches of pandemic but it needs to exhibit much greater momentum to exhibit consistency and to occupy a coveted slot it truly deserves on the global map.

Another very important observation is that the growth in Q1 relative to that in Q4 of the previous fiscal contracted by about 9.6% (from 40.78 lakh crore to 36.85 lakh crore as can be seen from the table above).This contraction by almost 4 lakh crore in two consecutive quarters needs introspection and analysis.It is possible that the rate hikes had already created their impact on this muted growth.

If we look at the GDP data for 2019-20, we find that there is a remarkable consistency in demand and consumption as reflected in the GDP figures for three consecutive quarters from Q1.Leaving aside the robustness or adequacy of these figures, a remarkable feature is the consistency.Such a thing is found lacking in the subsequent fiscals between consecutive quarters,

Two features revealed by data on sectorial breakdown need a laser sharp focus and  are:Manufacturing sector grew by 4.8% ( as against 49%) in Q1 of FY22 ( though the large take off speed from the inertia of rest in 2020-21 can not be ignored for such a big leap) and Construction sector grew by 16.8% ( as against 71.3%) in Q1 of FY 22

All in all it seems evident that the Services sector did the heavy lifting in the growth reported.Further rate hikes if inevitable, may be in small doses to have a tapered impact on the consumer spending and hence on growth.Else,with China’s economy slowing down and facing acute power shortage with factories shut down,US in technical recession,Europe in drought with food and fuel crisis mounting up,the China- Taiwan conflict unresolved, the Russia-Ukraine War  going beyond six months, further supply constraints would weigh heavily on inflation and a sustained demand is possible if consumers spend without which remedy may be worse than the disease.