GVA growth prospects

by Mahesh Vyas

While India’s gross domestic product (GDP) grew by 4.1 per cent in real terms in the quarter ended March 2022, its gross value added (GVA) grew at a slower pace of 3.9 per cent. GDP is GVA plus indirect taxes less subsidies. Usually, GDP is about 7-8 per cent larger than GVA in absolute terms. GVA estimates are based on a lot more direct measurement than GDP, which is largely deduced from data collected for GVA estimations. Therefore, estimates of GVA and its components can be a bit more realistic than the GDP and its components. GVA components are the broad sectors of the economy agriculture, industry and services.

Estimates of gross value added in agriculture are based on extensive field surveys to measure area cultivated for each major crop and crop cutting experiments are conducted to assess yields. This helps estimate production and then the GVA for crop cultivation, which accounts for over 50 per cent of the GVA for all agricultural activities. Till 2014, the share was much higher, at over 60 per cent. The rest is accounted for by horticulture, livestock, forestry and fishing.

Agricultural GVA grew by an impressive 4.1 per cent y-o-y in the quarter ended March 2022. This is the best performance of the agricultural sector in eight quarters. It is unlikely that crop cultivation played a big role in this impressive growth.

Fortunes of the Indian agriculture in the January-March quarter are determined largely by the rabi crop and wheat is the principal rabi crop. Excessively high temperatures in March damaged the crop to an extent that total production could be nearly 10 per cent less than in the previous year. Wheat accounts for 30 per cent of the rabi crop. Besides, other crops are also affected by the high temperatures. Therefore, either the 4.1 per cent growth in agricultural GVA will be eventually revised downwards or there was some extraordinary growth in the non-crop farm sectors that led to the impressive growth in agriculture in the March 2022 quarter. Nevertheless, high prices for farm produce and good rains hold a promise that 2022-23 could be another prosperous year.

Agriculture accounts for only about 15 per cent of total GVA and so its impact on the overall growth is modest. Industry on the other hand, accounts for 32 per cent. More than half of this about 57 per cent is from manufacturing. Another 28 per cent from construction and rest is from mining (8 per cent) and utilities (7 per cent).

Industry delivered a tepid y-o-y growth of 1.3 per cent in the quarter of March 2022. This is the second consecutive quarter of low growth as in the previous quarter the growth was even worse at 0.3 per cent. But, these low growth rates mislead. Y-o-y growth rates are treacherous. They are the cumulative effect of all waxing and waning during the past 12 months. In the case of industry for example, the 1.3 per cent y-o-y growth encapsulates the 18.5 per cent q-o-q fall in the June 2021 quarter, the 0.4 per cent fall in the December quarter and also the 6 per cent increase in the September 2021 quarter. And, in the March 2022 quarter, industry actually rose by 17.6 per cent q-o-q. While the March quarter seasonally posts higher growth rates, the March 2022 quarter’s 17.6 per cent growth was much better than any other March quarter’s q-o-q growth, at least in the past five years.

Within industry, the mining sector has been posting healthy growth rates. The trend in utilities is somewhat erratic as volatility has increased post the lockdown of the quarter of June 2020.

The construction sector has registered the best recovery from the lockdown. Gross value added of the construction industry in the quarter of March 2022 was Rs.3.38 trillion in 2011-12 prices. This was 20.6 per cent higher than it was in March 2020. No other sector has recovered similarly. In the March 2022 quarter, construction grew by a handsome 27 per cent over the previous quarter. Its robust recovery in the quarter is not evident from the 2 per cent y-o-y growth estimate because it includes the 32 per cent fall during the second Covid wave in the June 2021 quarter.

Y-o-y growth rates are similarly deceitful when analysing the manufacturing sector’s growth. Compared to a year ago, GVA of the manufacturing sector was down by 0.2 per cent. But, the March 2022 quarter recorded a GVA growth of 14.2 per cent over the previous quarter. The March 2022 quarter sees a seasonal increase in GVA. But, the increase in March 2022 was the highest q-o-q growth in the past five years save for the quarter of March 2021 which was only marginally higher at 14.8 per cent.

The q-o-q growth rates suggest acceleration in industry particularly in the heavy weights, manufacturing and construction.

In the Covid era, the share of the services sectors in total GVA has declined. It was 55.3 per cent in 2019-20 before it fell to 53.6 per cent in 2020-21. Even in 2021-22, the share remained low at 53.7 per cent. The fall is essentially because of the challenges faced by contact-based services. This is reflected in the fall in the share of ‘trade, hotels, transport, communication and broadcasting services’. This segment accounted for 37 per cent of the total services sector in 2019-20. The share fell to 32 per cent in 2020-21 and was at 33 per cent in 2021-22. In the March 2022 quarter, this segment was still just 1.7 per cent higher than it was in the March 2020 quarter.

The y-o-y growth series of the services sector suggests a significant tapering. After peaking at 10.5 per cent in the June 2021 quarter, the growth rate has dropped in every subsequent quarter. It fell to 10.2 per cent in the September 2021 quarter, then sharply to 8.1 per cent in the December 2021 quarter and then to 5.5 per cent in the March 2022 quarter.

A sectoral analysis of India’s real GVA growth during the quarter ended March 2022 quarter suggests that agriculture continues to do well and industry holds a promise to do better. The services sector has lost a bit of its importance. The sector is still adjusting to the opening up of the economy.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
8.0 +1.3
Consumer Sentiments Index
Base September-December 2015
68.4 +0.8
Consumer Expectations Index
Base September-December 2015
67.6 +0.9
Current Economic Conditions Index
Base September-December 2015
69.7 +0.7
Quarterly CapEx Aggregates
(Rs.trillion) Jun 21 Sep 21 Dec 21 Mar 22
New projects 2.94 3.26 3.53 5.91
Completed projects 0.71 1.28 2.76 1.15
Stalled projects 0.33 0.28 0.06 0.30
Revived projects 1.14 0.39 2.07 0.28
Implementation stalled projects 0.64 0.26 0.65 0.07
Updated on: 25 Jun 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Jun 21 Sep 21 Dec 21 Mar 22
All listed Companies
 Income 42.3 27.5 23.4 21.6
 Expenses 41.8 26.7 21.3 20.5
 Net profit 140.6 55.3 35.4 32.8
 PAT margin (%) 8.9 9.6 9.0 9.1
 Count of Cos. 4,564 4,690 4,733 4,508
Non-financial Companies
 Income 61.1 35.7 29.1 25.9
 Expenses 62.4 36.0 28.8 26.6
 Net profit 195.2 59.5 19.0 12.9
 PAT margin (%) 8.4 8.8 7.5 7.9
 Net fixed assets 4.9 2.2
 Current assets 10.8 15.3
 Current liabilities 0.8 11.7
 Borrowings 12.1 3.7
 Reserves & surplus 12.4 11.5
 Count of Cos. 3,336 3,387 3,428 3,280
Numbers are net of P&E
Updated on: 25 Jun 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 13.6
 Expenses 0.4 -3.4 10.5
 Net profit -4.4 72.2 58.0
 PAT margin (%) 2.0 4.5 10.9
 Assets 9.0 9.7 9.3
 Net worth 4.8 11.7 9.9
 RONW (%) 3.4 6.9 13.5
 Count of Cos. 32,455 29,998 539
Non-financial Companies
 Income -1.2 -2.3 26.3
 Expenses -1.0 -4.4 25.6
 Net profit -20.8 63.5 42.2
 PAT margin (%) 2.2 4.2 13.8
 Net fixed assets 11.2 2.0 -1.9
 Net worth 2.2 10.7 11.2
 RONW (%) 4.7 8.0 22.6
 Debt / Equity (times) 1.2 1.0 0.3
 Interest cover (times) 1.9 2.5 10.3
 Net working capital cycle (days) 81 85 16
 Count of Cos. 25,743 23,675 386
Numbers are net of P&E
Updated on: 20 Jun 2022 11:46AM