Assessing the health of the economy from quarterly GDP growth numbers is always fraught with risk. More so when, as now, the ups and downs make quarterly GDP numbers look more like BSE Sensex's ups and downs - before it got on steroids post-April 23, that is - than the growth trajectory of one of the fastest-growing major economies.
In such a scenario, how are serious economists to interpret the National Statistical Office's (NSO) April-June 2023 GDP estimates that were released yesterday? Well, with caution. On the face if it, Q1 growth of 7.8% looks strong, especially when compared to the rest of the world. But think twice before jumping to any conclusions. (Read: buttress the analysis with more than the usual smattering of 'ifs' and 'buts'.)
After all, who would have imagined the US economy, which economists had agreed was on the verge of a recession months back, would firing on all cylinders? That, too, after the US Fed has raised interest rates to a 22-year high. Or that the Chinese economy, long expected to roar back to growth, would stumble so badly post-Covid.
The reality, unfortunately, is that when it comes to reading the tea leaves from GDP estimates, even the best economists from redoubtable institutions like IMF and World Bank have been more off than (spot) on. Witness the number of times growth projections have been revised - both up and down. RBI's Q1 GDP estimates have varied from 6.7% (Aug 2022) to 7.2% (Sept 2022) to 7.1% (Dec 2022) to 7.8% (Feb and April 2023), and finally 8% (June and Aug 2023).
So, with that caveat, look at the latest numbers, both at the overall and the disaggregated or sectoral level.
Overall, Q1 growth is in the 'satisfactory but can do better' zone. At 7.8%, it is a tad below RBI's estimate of 8%. And though it is markedly lower than the 13.1% growth recorded in Q1 last year, the comparison is skewed by the base effect.
What is clear, however, is that the hoped-for pick-up in growth due to higher government expenditure and improvement in the services sector - especially services exports - has not materialised. On a sequential basis, Q1 GDP (real terms, 2011-12 base) is substantially lower (7.4%) than in Q4 (January-March 2023) of the previous year.
At the disaggregated level too, the news is sobering. Growth in agriculture, which had held up all along, has dipped from 5.5% in Q4 to 3.5%, though it is higher than in Q1 2022-23. Given the unfolding El Nino effect, with unexpected variations in temporal and spatial rainfall, the remaining months are likely to see growth in agriculture dip further.
Manufacturing has disappointed, as have construction, trade, hotels et al. Since these are the sectors expected to provide jobs for our youngsters, the below-par performance here is particularly worrisome.
While manufacturing grew only 4.7%, well below the 9.5% recorded in Q1 last fiscal and just barely over the 4.5% recorded in Q4, growth in construction and trade sectors is now in single digits at 7.9% and 9.2%, respectively, compared to 16% and 25.7% in Q1 of the previous fiscal. Indeed, the construction and trade numbers are somewhat puzzling because government capex has largely held up, and infrastructure spending has been strong.
Reflecting the sombre picture on the investment front, the Q1 investment-to-GDP ratio is unchanged at 34.7%. And though private personal consumption has gone up in absolute terms, its share in GDP has fallen from 58.3% in Q1 last fiscal to 57.3% this fiscal, as has government final consumption expenditure.
Remember, growth may be overstated, both on account of the sticky base effect and the single deflation methodology favoured by NSO to calculate real GDP (instead of using two different deflators for output and input). That takes away some of the gloss.
Add to that, uncertainty on the geopolitical front and the US Fed's apparent determination to keep raising rates, making it hard for emerging markets' central banks (including RBI) to cut interest rates to stimulate their economies, and GoI has a tough job on its hands. As US Fed chair Jerome Powell put it in a recent speech at last week's Jackson Hole symposium, 'Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth....' With inflation well ..
On a lighter note, finance minister Nirmala Sitharaman spoke for all of us, when at the B20 India 2023 last week, she said, 'As things stand, nobody has a clue. But everybody feels that, yes, the first quarter did go on well, so the numbers should be good.' The irony is that even after the numbers are in, we are not much wiser.
Of course, given the frequent revisions in quarterly growth numbers, it is no exaggeration to say that they tend to generate more heat than light. But to the extent the trend line is upwards, the finance minister has reason to feel less clueless. And happy.
Source Name : Economic Times