Official data set to release Tuesday is likely to show that India’s gross domestic product (GDP) grew at a record pace in Q1FY22. If the June quarter GDP is in line with expectations, it would mark the best quarterly growth since such data was maintained.

A recent poll of economists suggests that India’s GDP grew roughly 20 per cent in the June quarter, much higher than the 1.6 per cent growth recorded in the fourth quarter of FY21 (January-March quarter).

A wider view of other polls and predictions suggest that India’s GDP will register a growth of 18-22 per cent in Q1FY22. But how did the Indian economy grow at such a healthy pace in the first quarter despite being hit by the deadly second wave of the Covid-19 pandemic?

Read | India’s GDP in June quarter likely to touch record high. Here’s why

For those wondering, it is due to a low base effect. Simply put, growth in the first quarter of FY22 will be higher in comparison to Q1FY21 when India’s GDP contract over 24 per cent.

So, the reason why the GDP growth would be at a record high in Q1FY22 is due to a record contraction of 24.4 per cent in the same quarter last year.

GROWTH OR ILLUSION?

Ratings agency ICRA said a few days ago that India’s GDP is expected to grow at a “deceptively high” high rate of 20 per cent in the April-June quarter.

“The double-digit expansion expected in YoY terms in Q1FY22 is deceptively high, as it benefits inordinately from last year’s contracted base,” ICRA chief economist Aditi Nayar said.

“We forecast GVA and the GDP to have shrunk by around 9 per cent each in Q1FY22 relative to the pre-COVID level of Q1FY20, highlighting the tangible distress being experienced by economic agents in the less formal and contact-intensive sectors,” she added.

The ratings agency has called the GDP growth in the first quarter deceptive as there is a long way to go before India’s economy recovers fully. Though 20 per cent GDP growth seems like a fantastic rebound, it is only due to the sharp contraction seen in FY21.

WAYS TO IDENTIFY GROWTH IN FY22

Some economists feel that the official GDP growth percentage in the first quarter would be nothing more than an illusion due to the low base effect. In fact, the quarterly GDP growth will be high throughout the year due to dismal growth in all four quarters of FY21.

This means that it would be hard to determine actual growth by looking at this year’s quarterly GDP numbers, which would remain unusually high due to the low base effect.

In such a scenario, economic indicators like consumption demand, investments, exports, manufacturing data, factory output and core sector growth could provide a clearer picture.

To get a better idea of how individual sectors performed, it is ideal to track the gross value added (GVA), which is an economic productivity metric that measures the contribution of various sectors and regions.