GDP-GVA disparity due to lower subsidy

The divergence in gross domestic product (GDP) and gross value added (GVA) data for the third quarter of FY24 could be attributed to lower fertilizer subsidy disbursements, said a senior government official.

India's GDP spiked to a sixquarter high of 8.4% during Q3 FY24, beating estimates, while GVA growth was at 6.5%, showed data from the statistics ministry.

"The government operates on cash basis, not accrual, accounting for cash payments," Madan Sabnavis, chief economist at Bank of Baroda explained. "With actual spending on food and fertilizer subsidies totalling 70-75% of the revised estimates, it suggests the government has not fully disbursed subsidies, causing the disparity between GDP and GVA."

In the revised budget estimates for FY24, the government increased the allocation for fertilizer subsidy to ₹1.89 trillion from the initially budgeted ₹1.75 trillion. GVA quantifies value of goods and services produced in a country, deducting cost of inputs and raw materials. It adjusts GDP by factoring in subsidies and taxes on products.

In the April 2023-January 2024 period, the Centre provided about ₹1.71 trillion as fertilizer subsidy, according to a parliamentary submission by Bhagwanth Khuba, minister of state for chemicals and fertilizers, last month.

However, budgeted estimates for fertilizer subsidy, at ₹1.64 trillion, for FY25 is lower than the revised estimates for FY24.

The government revised the fiscal deficit target for FY24 to 5.8% of GDP, from 5.9% estimated earlier, following higher-than-expected tax collections, and higher dividends by public sector banks (₹98,000 crore in the first three quarters of FY24) and Reserve Bank of India (a record ₹87,416 crore ). “The Centre is trying to meet its revised fiscal deficit target for FY24,” the official said.

In the April 2023January 2024 period, the Centre provided about ₹1.71 trillion as fertilizer subsidy