The Gross Domestic Product figures for the period of October to December 2019 were published late last week. GDP measures the economic size of a country.
Alongside, the GDP figures for the previous two quarters – April to June 2019 and July to September 2019 – were revised.
This is highly unusual given that GDP figures are typically revised at the end of the year, after better data becomes available. Unlike listed companies, unlisted companies declare their results only once a year. So, this data becomes available only once the financial year is over, as does better agricultural produce data. Informal sector data isn’t available on a quarterly basis either.
On January 7, the government published the first advance GDP estimates for 2019-20. As per this estimate, GDP growth for the year was expected to be 5 percent. The revised GDP figures of April to June 2019 and July to September 2019 make this growth target easier to achieve than was the case earlier.
Let’s look at this pointwise.
1) The GDP data released on November 29, 2019, projected GDP growth for April to June 2019, to be 5 percent and for July to September to be 4.5 percent. The GDP data released last week, on February 28, revised these numbers. GDP growth for April to June 2019 was revised to 5.6 percent and for July to September 2019 to 5.1 percent.
2) What happened here? Basically, GDP growth for April to June 2019 was revised upwards by 60 basis points, from 5 percent to 5.6 percent. GDP growth for July to September 2019 was also revised upwards by 60 basis points, from 4.5 percent to 5.1 percent. One basis point is one-hundredth of a percentage.
3) So how was this done? Let’s first take the period July to September 2019. As per the GDP data published on November 29, 2019, the GDP for this period was Rs 35.99 lakh crore. The GDP for the period July to September 2018 had stood at Rs 34.43 lakh crore. This implied a GDP growth of 4.5 percent.
In the data published on February 28, 2020, the GDP for the period July to September 2019 has been revised upwards to Rs 36.07 lakh crore. Along with this, the GDP for the period July to September 2018 has been lowered to Rs 34.33 lakh crore. This puts the GDP growth at 5.1 percent. Basically, increasing the numerator and decreasing the denominator in the calculation of GDP growth has helped push up growth from 4.5 percent to 5.1 percent.
4) Now, let’s take a look at the period April to June 2019. As per the GDP data published on November 29, 2019, the GDP for this period was Rs 35.85 lakh crore. The GDP for the period April to June 2018 had stood at Rs 34.14 lakh crore. This implied a GDP growth of 5 percent.
As per the GDP data published on February 28, 2020, the GDP for the period April to June 2019, has been cut to Rs 35.48 lakh crore. But the GDP for the period April to June 2018, has been cut even more to Rs 33.59 lakh crore. This has pushed growth during the period to 5.6 percent from the earlier 5 percent. Basically, both the numerator and the denominator have been cut, but the denominator has been cut much more than the numerator and this has pushed up GDP growth.
5) All in all, this has made the projected growth of 5 percent for 2019-20 easier to achieve. Even if the economy grows by 4.7 percent in the January to March 2020 quarter, the growth rate of 5 percent is likely to be achieved. Economic growth during January to March 2020 is likely to be less than 5 percent, simply because the real economic impact of the coronavirus will be felt during that quarter. Also, the central government’s expenditure during that period is likely to see a squeeze with the government not earning the projected amount of taxes.
6) Up until now, we were looking at quarterly GDP data. Now let’s look at the annual GDP data, which tells us the same story. As per the GDP data published on January 7, 2020, the GDP for 2018-19 was expected to be Rs 140.78 lakh crore. GDP growth for the year was expected to be at 6.8 percent. As per the GDP data published on February 28, 2020, the GDP for 2018-19 has been revised down to Rs 139.81 lakh crore. GDP growth for 2018-19 now stands at 6.1 percent, down 70 basis points from the earlier projection.
7) Interestingly, as per the GDP data published on January 7, the GDP for 2019-20 was expected to be Rs 147.79 lakh crore. GDP growth for the year was expected to be 5 percent. As per the GDP data published on February 20, the GDP for 2019-20 is now expected to be Rs 146.84 lakh crore, which is lower than the January projection. Despite this, the GDP growth projection continues to be 5 percent. This is because the GDP for 2018-19 has come down by an almost similar level.
The sad part is that none of the professional economists have gone around pointing this out. While this is no proof of data being fudged, what is happening is highly unusual. The least economists can do is point this anomaly out. But for reasons best known to them, most economists have kept quiet about this.
Finally, so much fiddling around with the GDP data makes the high-frequency economic indicators – everything from car sales to two-wheeler sales to FMCG data to railway freight movement to non-oil non-gold non-silver imports – even more important to track. That gives us the real picture.