Back to positive, but which number to trust?

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

Back to positive, but which number to trust?

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• Recent numbers: The Q3 real GDP growth for FY21 was 0.4% y-o-y compared to minus 7.3% in Q2. For Q3, nominal GDP growth was 5.3% y-o-y. But GVA figures were very different: 1% y-o-y for Q3 compared to minus 7.3% in Q2.  (all these are by MoSPI, second Advanced Estimate)
• Estimates for annual growth: FY21 GDP will grow at minus 8% y-o-y (earlier minus 7.8%), and GVA will grow at minus 6.5% (earlier minus 7%). So there are some problems with the data.
• Problems: Why such a sharp gap between GDP and GVA growth numbers in Q3 (0.4% versus 1%)? And why so for full year too ( -8% versus -6.5%)? Which should we use, GDP or GVA? And why did Q3 did worse than earlier thought?
• Reasons:

1. FCI subsidy payments have distorted GDP estimates. Since GDP = GVA + net indirect taxes (= indrect taxes - subsidies), and indirect taxes grew fast in Q3, so the only explanation is that subsidies must have grown faster than taxes  (only then GDP will be slower than GVA)
2. That is correct, as govt. is paying off pending food and fertiliser subsidies, thereby that figure got bloated up (Rs.1.7 lakh crore for FCI subsidy, e.g.)
3. The full year impact is more pronounced - growth in GDP is quite lower than that in GVA ( -8% vs -6.5%)
4. So perhaps GVA will better reflect economic growth this time, for both FY21 and FY22.

• GVA story: 

1. The manufacturing growth for Q3 was 1.6% y-o-y, in line with IIP manufacturing, but many expected a higher no. due to better corporate results. Maybe later revisions will be upwards. 
2. Govt. spending was lower than expected. State spending is weak, and some of the centre's spending is just payment of previous dues.
3. So in GVA, the above two problems existed, but agriculture was resilient, and construction and finance rose sharply into positive growth. Most services grew but were in the negative.
4. And in GDP, PFCE and GFCE were negative, but GFCF was positive (due to construction), and net exports were a dra (imports picked up sharply).

• Rebound: Past few months saw the rebound due to pent-up goods demand. Now we may see pent-up services demand, due to vaccine rollout. If pandemic doesn't come under control, some states may face trouble. And rising oil prices, and rising bond yields are risks too.
• Summary: If govt. can sell its stakes quickly, reintroduce IBC faster, push PLIS harder, and continue welfare spending, then cyclical uptick can become structured growth.

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.