Economic disruption due to COVID-19 induced pandemic forced the Indian economy to contract 7.3 percent in the previous fiscal. The contraction wasn’t homogenous though – the first quarter had it bad, with almost 25 percent contraction. The third and fourth quarters recovered as the economy expanding 0.5 and 1.6 percent, respectively.

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But then the second wave of COVID-19 infections took us by surprise. Now in 2022, the Reserve Bank of India (RBI) expects the economy to expand 9.5 percent.

Now we have the numbers, let’s take a look at how the economy fared during the first quarter of FY22.

Manufacturing numbers

The seasonally-adjusted IHS Markit Manufacturing Purchasing Managers’ Index (PMI) declined 48.1 percent in June from 50.8 in May. The index measures the performance of the manufacturing sector and is a good indicator of economic activity in any country.

According to numbers, India’s manufacturing sector looks bad for the first quarter – the economy contracted for the first time in 11 months, though it’s been falling since January.

On the contrary, the output of eight core sectors grew by 16.8 percent in May. During April-May this fiscal, the eight sectors grew by 35.8 percent compared to a negative growth of 29.4 percent in the same period last year.

Auto sales numbers

Auto sales is another indicator of economic activity. For two-wheelers, we take the example of Hero MotoCorp. The country’s largest two-wheeler maker sold 4.69 lakh units in June, as compared to 1.83 lakh in May.

The company has done very well in June, as compared to April and May, but YoY figures are bad, as shown in the table above.

Taking Maruti Suzuki for four-wheelers, it has done better in June than in May. The largest carmaker sold 147,368 units in June 2021; a growth of 156 percent as compared to 57.428 units of June 2020.

The first quarter of FY22 was also better than that of FY21. But the first-quarter numbers of FY20 and FY19 were even better than that of FY22, as shown in the table above.

Government finances

Let’s take a look at key trends in government finances to get an idea of first-quarter growth.

(We are considering FY20 instead of FY21 because of the three, nearly four-month-long lockdown that froze the economy.)

Total receipts are 3.49 trillion in Q1 FY22 as compared to 1.46 trillion during the same period in FY20. The numbers are superb, but that’s because of the RBI dividend.

The central bank approved a higher-than-expected dividend of Rs 99,122 crore to the government. The decision to pay nearly Rs 40,000 crore more than estimates will back the economy amid a strain on public finances due to the pandemic.

However, expenditure is not showing the same increase as revenue -- it is down by Rs 30,000-40,000 crores.

Total expenditure was Rs 4.79 trillion in Q1 FY22, lower as compared to Rs 5.12 trillion in Q1 FY20. This is a little worrying because government expenditure stimulates the economy.

Tax collection for the quarter is good – the government collected Rs 3.12 trillion as compared to 2.15 trillion in Q1 of 2019. But corporate tax collection is breathtakingly higher.

Corporates paid Rs 43,454 crore in Q1FY22, as compared to Rs 1,126 crore in Q1 FY20. Corporates have never paid taxes over Rs 15,000 crores.

There has been substantial growth in personal income taxes as well. Govt collected Rs 75,381 crore in this quarter as compared to 60,556 in April-May 2019.

The excise tax, as one would guess, is higher as well because of rising fuel prices. While the government collected Rs 17,333 crore in Q1 FY20, it collected Rs 36,963 in Q1 FY22.

However, while the centre collected more and more money, it did not give as much to the states. Centre gave a good Rs 20,000 crore less to the states in the first quarter – Rs 78,349 crore in Q1 FY22 and Rs 99,087 in Q1 FY20. While this is a good thing for the centre, it is not good for states because giving to states accelerates the economy.

Experts believe the bumpy start of Q1 FY22 will continue throughout the year.

“Q1FY22 started out on a pretty bumpy note. While the pace of vaccination is going to increase, one key takeaway from what we have seen so far is that one should still expect a bumpy profile ahead for the year, Sonal Varma, the Chief Economist of India and Asia ex-Japan, Nomura Financial Advisory said.

CNBC-TV18 spoke to a panel of experts to take a stock of the first quarter and how we can look at the subsequent quarters.

“The second takeaway is the recovery is still uneven. Incrementally, June-July onwards the numbers are going to be better across the board.” Varma added.

“Third, this is very much a K-shaped recovery,” she added. K-shaped recovery occurs when, after the recession, the different parts of the economy recover at different rates, times, or magnitudes. It is called such because the path of different parts of the economy is seen to diverge when plotted on a graph. The shape resembles the letter ‘K’.

Varma expects FY22 gross domestic product (GDP) growth at 10.4 percent, higher than RBI’s estimation of 9.5 percent.

“We are seeing GDP growth this year at 10.4 percent. In Q1, on a quarter-on-quarter (QoQ) basis, we expect a 4 percent contraction on a seasonally adjusted basis. Our year-on-year (YoY) numbers are slightly above 28 percent.

We think there would be a sequential pickup in second quarter. On a YoY basis we are looking at a growth of around 8-8.5 percent,” she explained.

On the contrary, Citi is looking at about 15 percent annualised seasonally adjusted drop in GDP in Q1 FY22, which would yield a YoY number of about 25 percent increase. “This is much better than RBI’s 18 percent,” Citi’s Chief Economist Samiran Chakraborty said.

The full-year GDP, we are exactly at where RBI’s 9.5 percent is, he added. “We are looking at a shallower drop in the first quarter and then a shallower increase whereas RBI has a sharper drop and a sharper increase,” Chakraborty said.

Group Chief Economic Advisor at State Bank of India, Soumya Kanti Ghosh, expects a GDP growth of 7.9 percent for FY22.

“We had forecasted a little lower GDP growth number at around 7.9 percent. Because we are seeing some sort of an uneven recovery in terms of the rural and urban sector,” he added.

For the entire conversation, watch the accompanying video.

(Edited by : Yashi)