Gross Value Added numbers and the economy

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 Gross Value Added numbers and the economy

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• 2019-20 GDP figures by NSO: As per the NSO, the national income estimate for 2019-20 read thus - (i) real GDP was 4.2% higher from 2018-19, the slowest growth in 11 years, (ii) Q4 growth for Jan-Mar 2020 was at 3.1%, (iii) GVA figures were also given, and were revised substantially.
• Feb 2020 versus May 2020: The GVA figures for Q1, Q2 and Q3 were lowered a lot in these two estimates. So, economic deceleration is far sharper than assumed in Feb 2020.
• Concept of Gross Value Added: From 2015, India updated its national accounts compilation as per the UNSNA, 2008 (UN System of National Accounts).

1. Accordingly, GVA is value of output minus that of intermediate consumption. 
2. It is measured as contribution to GDP by an individual producer, industry, sector.
3. It is the Rupee value of goods and services made in economy minus cost of inputs and raw materials.
4. GVA represents the Supply Side (economics) and is the main entry on income side of India's balance sheet.
5. When base year was changed from 2004-05 to 2011-12, "GVA at basic prices" was used to measure output across sectors, unlike "GVA at factor cost" (earlier) [which was used to measure GDP at factor cost earlier, before UNSNA]
6. Today, when we add GVA at basic prices to net taxes, we get the GDP.

• GVA data by NSO: It gives quarterly and annual data of economic output, by various activities. The sectors are - Agriculture, Forestry and Fishing; Mining and Quarrying; Manufacturing; Electricity, Gas, Water supply and Utility services; Construction; Trade, Hotels, Transport, Communication and Broadcasting Services; Financial, real estate and professional services; and Public Admin, Defence and other services.
• So what's the problem now: In Feb 2020, NSO claimed that GVA growth rates for Q1, Q2 and Q3 were 5.4%, 4.8% and 4.5%. Now the numbers are 4.8%, 4.3% and 3.5%. Overall for 2019-20, it was 4.9% earlier, and is 3.9% now, a sharp reduction.
• Services doing badly: Biggest services sectors have slowed down a lot - (a) 20% of GVA is contributed by "Trade, Hotels, Transport, Communication and Broadcasting Services", and (b) "Financial, real estate and professional services" is the biggest contributor to GVA at 25%.

1. For (a), earlier estimates of GVA for  Q1, Q2, Q3 were 5.7%, 5.8% and 5.9% which are now just 3.5%, 4.1% and 4.3%.
2. For (b), earlier estimates were 6.9%, 7.1% and 7.3%. Now they are at 6%, 6% and 3.3% resp.

• Agri and Pub Admin doing good: Revised figures show that they have done slightly better compared to earlier estimates.
• GDP versus GVA: While news always mentions GDP figures, but GVA helps us learn about how real economy sectors are performing. GDP is GVA plus net taxes (taxes minus subsidies). GDP is also measured as sum of expenditures in economy (PFCE, GFCE, GFCF etc.), they show the demand conditions. For making policy interventions, GVA data helps more. GVA is also as per global standards, and helps project our case better.
• Problems with GVA: Like everything else, GVA data too is dependent on accuracy of raw data and inputs. The ex-CEA had analysed that the new 2011-12 base year change introduced some infirmities in calculations, leading to growth over-estimations. His logic - the value-based new approach instead of volume-based one (for GVA) was problematic, leading to over-estimation in formal mfg. sector.

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