No green shoots of a revival in sight as yet (Growth rate is declining, and reversal is not on the horizon)

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 No green shoots of a revival in sight as yet (Growth rate is declining, and reversal is not on the horizon)

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• NSO Q3 GDP estimates, 2020: The 4.7% GDP growth rate for Oct-Dec 2020 (at constant prices) on Y-o-Y basis was higher than the 4.5% for Q2. So predictions of a "bottoming out" or "green shoots" began.
• Reality is different: There are questions on what is going on.

1. The NSO has revised the Q1 and Q2 data for 2019-20 from earlier figures of 5% and 4.5% to 5.6% and 5.1%, resp. So that means that the 4.7% for Q3 is a slowdown, not a turnaround!
2. Is the latest revision truthful? Nobody knows. It happened as the corresponding figures for 2018-19 got revised downwards. 
3. Doubts on the veracity of India's GDP numbers have continued since 2015, when the NSO (then CSO) put out new GDP numbers with 2011-12 as base year.

• The process of revisions: Let us understand more.

1. Temperature measurements are objective reality. But GDP measurement takes into account several parameters like production, consumption and incomes.
2. To join all together, standard accounting methods are used as per UNSNA - UN System of National Accounts. 
3. 2020 Q1 and Q2 revisions were done as per UNSNA 2008 edition. All nations undertake multiple revisions, except China.
4. Regular process - India revises GDP data 5 times in 3 years - First and Second Advance Estimates are made using high-frequency proxy indicators, and then come the 3 Revised Estimates based on actual data.

• Problem with quarterly GDP estimates: From 1999, India has used IMF method to prepare quarterly estimates. But there are problems as a lot of data in India is not structurally sound on a quarterly basis.

1. 50% of India's GDP originated in informal sector (incl. agri) which is not properly estimated.
2. The National Accounts Statistics 2012 guide says that "production approach is used for QGDP estimates for GVA, and uses the benchmarke indicator approach.
3. Benchmark Indicator approach - a key indicator for which data is available on Q basis is used to extrapolate (and estimate) the output (or value-added) estimates of previous year.
4. So, quarterly estimates of GDP are extrapolations of annual series of GDP. What about GVA? GVA estimates by industry are compiled by extrapolating value of output with relevant indicators.

• Revised Q1 and Q2 of 2019-20: In the above light, the revisions in Q1 and Q2 were probably correct given the latest changes in annual estimates (second advance estimates).
• But the decline is visible: Irrespective of what we believe, the declining trend in GDP growth is visible.

1. For seven straight quarters it has gone from 7.1% in Q1 of 2018-19 to 4.7% in Q3 of 2019-20.
2. Most physical indicators of production like automobile sales are declining unabated. Where's the bottoming out?

• Annual and Quarterly: The 7-quarter steady decline is over and above annual GDP slowdown for 4 years now. It was 8.3% in 2016-17 and is 5% in 2019-20. (second adv. est.)
• Ex CEA Arvind Subramanian: His estimate is that actual GDP growth through 2010s may be lower than official estimates by 2 - 2.5 %.
• Summary: India's Q-GDP numbers have limited primary information, and their revisions are based on annual figures. They help see broad trends only. Situation today is very grim, and no green shoots are in sight.
• Irrespective of the complexities of the GDP and GVA estimation methodologies, the fact that economic downturn has set in, and no green shoots are in sight, is clear.

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