Q4 GDP assessment remains a major statistical challenge
NEW DELHI: Professional forecasters’ projections for March quarter gross domestic product (GDP) growth of FY21 range from a contraction of 0.4% to growth of 3.5%, signalling the mystery and difficulty involved in assessing growth in a year when the economy saw its worst recession in independent India. The Central Statistics Office (CSO) will release its GDP estimates for the March quarter and for the full year on Monday.
On one end of the curve is Barclays, which has projected the economy to expand at 3.5% in the March quarter (Q4), holding that a low base and strong sequential gains helped propel GDP growth to a five-quarter high.
“The resurgent Covid-19 wave took the wind out of an economic recovery that was gathering momentum in Q4,” it added. The economy grew at 3.1% in the March quarter of FY20, partially impacted by the Covid-induced lockdown imposed last year, thus providing a favourable base for March quarter of FY21.
QuantEco Research, on the other hand, has estimated GDP to contract 0.4% in the March quarter, calling it a statistical or accounting outcome, even though it has projected gross value added (GVA) to grow at 3.2%. “The divergence in GDP vis-à-vis GVA is, however, likely to be more pronounced, with the one-time food subsidy adjustment announced in the budget getting reflected,” Yuvika Singhal, economist at QuantEco Research, said.
Finance minister Nirmala Sitharaman in her FY22 budget made a significant announcement to account for all the offbudget borrowings for subsidies, mainly for Food Corporation of India (FCI), and accordingly made budget allocations for both FY21 and FY22. As a result, the government’s food subsidy bill bumped up significantly for FY21 and in Q4, the government would have paid a subsidy bill of ₹3.7 lakh crore out of which around ₹3 lakh crore is food subsidies, including past dues of the FCI.
Since the GDP is calculated by adding indirect taxes and deducting subsidies from GVA, a huge subsidy bill could bring down overall GDP for the year, which may be the case for FY21 and FY22.
Pronab Sen, former chief statistician of India, said GVA data is a better major measure of production. “GDP data is in a big mess because in FY21, the government paid subsidies which it owed for the last three years. So, what will end up happening is net indirect tax will fall and as a result, the difference between GDP and GVA will be very narrow,” he added.
If the impact of a low base and bloated subsidy bill was not enough, potential revisions of past GDP data will make any forecast near impossible.
State Bank of India (SBI) said though the corporate results has so far reinforced the fact that March quarter of FY21 growth would be much better than the December quarter growth, the entire projection for March quarter of FY21 is dependent on how much past data will be revised by the NSO.
SBI projected March quarter GDP to grow 1.3% with a downward bias, while FY21 GDP is estimated to have contracted 7.3%.