GDP – March’20 Analysis

The much-awaited GDP data, released yesterday by MOSPI, shows that economy expanded by 3.1% during the quarter ended March’20, lowest in all the quarters since the beginning of current series (2011-12). While the decline puts the economy in a grim situation, what is even more concerning is that growth rate for the first nine months (April-Dec’19) has been revised down from 5.1% to 4.5%. This puts a question mark over this quarter numbers also and there is a high likelihood that this may also see a downward. Nevertheless, here is a brief analysis of GDP and its constituents.

GDP vs GVA –

As per MOSPI, Indian economy recorded GDP of Rs 38.03 lakh crore during March’20 and Rs 146 lakh crore for full year (constant prices, 2011-12 base). This implies growth rate of 3.1% during the quarter and 4.2% for the full year, lowest in last eight years since this data series started. The decline now is more than what can be explained by Covid-19 and points to general decline in economic conditions. On current price basis, GDP for FY20 stands at Rs 203 lakh crore or about $2.7 trillion at current exchange rate.

In tune with GDP, GVA (Gross Value Added) for the quarter stood at Rs 34 lakh crore and Rs 133 lakh crore for the year. Growth in GVA is marginally lower than GDP at 3% and 3.9%. The difference between GDP and GVA is equal to net tax (tax minus subsidy) collected by government and lower growth in GVA than GDP implies higher growth in net tax collection.

Sectoral Analysis – 

While economy’s aggregate figure is represented by GDP, individual sector’s data is captured through GVA. GVA is dis-aggregated across eight sectors – Agriculture, Mining, Manufacturing, Electricity (& other utilities), Construction, Trade (& transport etc), Financial (& other services) and Public Administration (& defence etc). Of these, while public administration (largely government driven) recorded highest growth of 10.1%, manufacturing & construction fared the worst declining sharply by -1.4% and -2.2%. Both the sectors are most critical from the perspective of jobs creation & perception of economic activity and have declined for three successive quarters now. Interestingly, electricity grew by 4.5%, against decline of 0.7% in previous quarter. Electricity is a lead indicator as any uptick in economic activity (more so, industrial activity) would lead to higher consumption of electricity. What has driven its growth in this quarter is difficult to ascertain at the moment.

Two other important segments, financial service and trade managed growth of just about 2.5%. More worryingly, GVA growth for Dec’19 quarter for the groups has been revised downwards from 7.3% to 3.3% and from 5.9% to 4.5%. Such sharp revision points to a serious deficiency in data management system.

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). To this, exports, imports, change in inventory etc are adjusted to arrive at final GDP. Except for government expenditure, other two segments have seen significant reversal. While private expenditure increased by 2.8%, down from 5.5% in the first three quarters, capital expenditure declined by 6.5%. The stress in the capital expenditure had begun even earlier with decline of 4.8% during July-Dec’19 period itself. It may be noted that manufacturing sector had been running at a capacity utilization of just about 70% which needs to increase to about 80% before capital expenditure decisions are taken. Covid-19 seems to have dealt a final blow to it. Government expenditure, battling the slowdown almost all alone, rose sharply by 13.4%, up from 11.3% in the previous three quarters.

There is still one more interesting aspect of the story. GDP figures from the production and consumption sides do not always match and the difference is shown as ‘discrepancies’. Higher the accuracy of information, lower is the discrepancy and as data flow improves, the discrepancy goes down. The discrepancies for March’20 quarter stands at Rs 1.46 lakh crore, almost 4% of GDP and implies actual consumption is lower than what production figures suggest. The figure is significantly high and stood at just about Rs 15,000 crore when the data of previous two quarters were released. The high discrepancies give more reason to believe that data may get revised significantly.

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