4.7: What Q3 GDP Advanced Estimates Mean For The Indian Economy

Compilation of National Income Accounts is a mechanical and laborious task which is done from time to time. These estimates are based on whatever information is available at that point of time and they’re subsequently revised as new information is made available.

The recent press-release has revised the growth estimates for the first and second quarter of the current financial year while it estimates Q3 growth to be at 4.7 per cent.

The initial estimates for growth of the first quarter was 5 per cent, for Q2 it was at 4 per cent.

Therefore, Q3 growth of 4.7 per cent indicates that the economy indeed bottomed out in Q2 and that the process of recovery is slow.

But, the estimates for Q1 and Q2 have been revised upwards with the new estimates pegging Q1 growth at 5.6 per cent and for Q2 at 5.1 per cent.

This suggests that the Q3 estimates will be revised upwards again – a fact that was also mentioned by economist Rahul Bajoria on Friday after the figures were released.

This means that Q3 revised estimates would well be closer to our forecast of growth at 5.2-5.4 per cent.

We will get to what happens in Q4 but before that, it is important to discuss whether the upward revisions of this magnitude can be justified on the basis of high frequency indicators.

It is indeed the case that high frequency indicators have justified these figures as majority of forecasts for the first and second quarter were in a similar range. Therefore, the upward revision makes a lot of sense.

However, that won’t stop others from alleging that the upward revision was done due to political interference. Politicisation of our statistical system originated ever since we moved to the new method and base year of 2011-12 for our national income accounts.

Even as we brace ourselves for charges against the accuracy of the data, we must remember that everyone was happy to believe our growth to be at 4.5 but the moment it got revised to 5.1, somehow the data has become unreliable.

A similar revision for Q3 figures augurs well for the growth estimates for the entire financial year which was pegged at 5 per cent in the first advanced estimates.

The data story here isn’t that growth figures are lower than our potential – indeed, growth is substantially lower than our potential. However, the significance of Friday’s release is to help us understand what the lowest value of our economic growth is – and the answer to this is 5 per cent.

This isn’t a surprise as we’ve found our growth to touch 5 even before – but the only time it breached this figure in recent history was during the 2008 crisis.

The only concern at the moment is regarding sluggish growth of banking credit which has been mentioned by many as an indicator that all is not well. Indeed, in normal times, slow growth of bank credit would be alarming.

However, the increase in use of external commercial borrowings along with deleveraging can be a part of the reason why bank credit growth is slow.

One has to wait for more data points to be available before forming any opinion or making any forecast about the future.

The only silver lining is the uptick in discretionary consumption and in improvement in GST collections from November onwards which signal a cyclical recovery, and therefore many anticipate Q3 figures to be revised upwards.

If indeed, growth recovers in second half despite the disruptions caused by Coronavirus then we’re looking at a higher growth rate in the coming financial year which could well be closer to our true potential.