Indian economy’s growth for the quarter ended Dec’19, as per the data released by MOSPI today, presents a complex picture. GDP growth is marginally better than initial estimates of Sept’19 quarter giving reason to believe that economy has bottomed out. However, there is a catch. Growth for previous two quarters has been adjusted upwards by as much as 0.5 percentage points, which makes this another quarter of growth decline. (What if this quarter also sees an upward revision later?). Whichever way it is approached, it is clear that economy is still in distress and recovery, if at all it has begun, would be a slow and long drawn one. Here is a look at the details of what is pulling it down.
GDP vs GVA –
As per the data, GDP (Gross Domestic Product) for the quarter stood at Rs 36.7 lakh crore (constant prices, 2011-12). This corresponds to increase of 4.7%, lower than 5.1% in Sept’19. (Dec’19 is Q3’FY20 and Sept’19 is Q2’FY20. Comparison with previous year looks irrelevant at this moment as growth figures are far lower). On current prices basis, GDP stood at Rs 52 lakh crore implying average inflation of 4.6% during the period. (The comparison is done on constant prices to eliminate the impact of inflation).
While economy’s aggregate figure is represented by GDP, individual sector’s data is captured through Gross Value Added (GVA). Net tax collected by government (tax collected minus subsidy paid out) is added to this to arrive at GDP. (This means, lower net tax collection can lead to lower GDP even if the GVA is high). GVA for the quarter stood at Rs 33.5 lakh crore, growth of 4.5%, again, lower than 4.8% in Q2. (It may be noted that for both quarters, GVA growth is lower than GDP growth, implying higher net tax collection during both the quarters).
Sectoral Analysis –
Sectorally, GDP is dis-aggregated across eight sectors – Agriculture, Mining, Manufacturing, Electricity (& other utilities), Construction, Trade (& transport etc), Financial (& other services) and Public Administration (& defence etc). The three largest sectors are financial services, manufacturing and trade with 18-22% share. Of these, public administration (largely government driven) recorded highest growth of 9.7% whereas electricity is lowest at -0.7%. Even though electricity has a low share of just about 3%, it is actually a lead indicator as any uptick in economic activity (more so, industrial activity) would lead to higher consumption of electricity and therefore, higher growth.
Manufacturing sector, the most critical in terms of jobs creation and perception of economic activity, remains a drag with a decline of 0.2%. While it is better than decline of 0.4% in Q2, that is hardly enough to provide any comfort. The analysis of this sector is also important as its data has undergone significant revision with June’19 (Q1) growth being revised upwards from 0.6% to 2.2%. (While allegations of data manipulation abound, intuitively, temptation would be to adjust the figures in such a way that it reduces the decline rather than increases the growth). A sector that has seen sharp reversal over Q2 is construction with share of about 8% in total GVA. The sector recorded growth of barely 0.3%, sharp decline from 2.9% in Q2. Sanctioning of funds as per the initiative taken by government to provide support to stuck projects may provide some fillip in March’20 quarter.
Expenditure Analysis –
Other than individual sectors, GDP performance is analysed from expenditure side also. The expenditure is divided into three groups – private expenditure, government expenditure and capital formation (or capital expenditure). During the quarter, while private expenditure marginally improved – from 5.6% to 5.9%, capital formation dipped further, declining by 5.2% against 4.1%. Outlook for this group is quite bleak considering the fact that capacity utilization of manufacturing sector remains low at about 70%. Capital formation through private investment can pick up only when this goes up to about 80%. Only segment witnessing growth is government expenditure which grew by 11.8%. However, this is still lower than growth of 13.2% in the previous quarter. Any attempt by the government to reduce its expenditure, to control its deficit, can have a cascading impact.