Understanding GDP slump - Part 3 of 3 | Summachar

Looking at the absolute quarterly GDP of india over the last decade shows some interesting trends.

Although there is seasonal volatility, as seen in the ripples on the curve, the annual trend is of growth - the curve moves upwards at a steady pace
There’s generally a slump every year during Q1 (Apr-Jun). This is the quarter post budget announcements.

Annually there’s a strong rally around Q3 (Oct-Dec). This quarter sees a lot of major festival celebrations in India.

Interestingly, the COVID slump brought India’s production to 2015 levels
Given that the lockdown affected Tier 1 and 2 cities more than smaller towns and rural India, an inference that can be drawn is that small town and rural India today contributes to production as much as all of India did 5 years ago. Also they seem to contribute to almost 70% of the GDP.

If we look at the annual GDP, India had an average annual growth of 6.6% in the last decade. The Min was 4.2% in FY19-20 and Max was 8.3% in FY16-17.

COVID19 lockdown during FY20-21 Q1 led to quarter GDP to shrink to ₹27 tn from ₹38 tn in the previous quarter.

If the next 3 quarters perform at the pace set by the quarters before COVID19 we will be on course for a classic V shaped recovery
China has shown a similar recovery in the last quarter ending June

In a V-shaped recession, the economy suffers a sharp but brief period of economic decline, followed by a strong recovery.
Post lockdown, if the next 3 quarters’ GDP is in the range of FY19-20 Q4 (~₹40 tn), the annual GDP growth will be positive.

Even a simple recovery like this would translate to a potential 50% QoQ growth during Q2! This steady recovery would lead to a 1.5 - 2.5% annual growth for FY20-21. Yet again proving the volatility of QoQ GDP numbers and the importance of understanding the different terminologies associated with GDP.