The third-quarter gross domestic product (GDP) numbers are hiding more of the slowdown than they reveal. Although, the Q3 headline GDP has come in at 4.7 percent versus the expected 4.6 percent thrown by the CNBC-TV18 poll, is this a cause for joy? No, and that is because the actual GDP for the first quarter of the current year has been revised lower by about Rs 45,000 crore.
Yet, the Q1 GDP has been revised up from 5 percent to 5.6 percent and Q2 GDP has been revised higher to 5.1 percent from the earlier 4.5 percent. How come the GDP amount is lower but the rate of growth is higher? That is because last year’s GDP numbers have been revised much lower. Net-net, Q3 of the current year is the slowest quarterly growth since the great financial crisis. What is worse is consumption is slowing and investment has gone for a toss, it is negative.
Former chief statistician, Pronab Sen said, “I was a little surprised that they revised first two-quarters numbers this year as this is almost never done at the stage of advance tax estimates, it is done at the stage of the first full estimate which is usually later. So, this is quite unusual. I think it is basically to protect that 5 percent, because now what happens is, unless the fourth quarter shows less than 4.5 percent, your 5 percent will be met.”
Sudipto Mundle, former chairman of NSC and board member of NIPFP said, “On the demand side, consumption has slowed down and there is a very sharp decline in the growth of investment rate. The percent of GDP has really gone down. The saving grace in a sense is the negative development, namely the very sharp decline in imports. It is a reflection of the decline in the economy that we are importing less. But since the decline in imports is much sharper than the export, so the trade balance has moderated the decline in growth. So, that is helpful apart from the fact that the other positive is the government final consumption is holding up.”
Soumya Kanti Ghosh, group chief economic advisor, SBI said “The interesting part is that the FY20 downward revision is around Rs 95,000 crore and the FY19 downward revision is also of the same amount. So, basically the 5 percent growth rate has been protected possibly by the exactly equivalent downward revision in both years. Remember, you are talking about 5.6 percent growth rate this year. If the base was not changed this year, the growth rate in the first quarter would have been at 6.7 percent. So, basically a lower base in this year has actually pulled down the growth rate to 5.6 percent from 6.7 percent.”