Revised GDP Data Paints A Bright Picture For The Indian Economy

The Indian economy grew faster than earlier projected over the last two years despite the twin shocks of demonetisation and the implementation of GST. The first revised estimates of national income for 2017-18, which also include second and third revisions to growth estimates for previous years, were released by the government’s statistical office on Thursday and present a sharply different picture of the economy over the last few years.

• For 2017-18, the first revised estimate for GDP growth now stands at 7.2 percent, compared to the 6.7 percent estimated earlier. Gross Value Added, a preferred measure of economic activity, has been revised to 6.9 percent for 2017-18, compared to 6.5 percent as per the provisional estimates.
• For 2016-17, the year demonetisation was announced, GDP growth has been revised higher to 8.2 percent, compared to the earlier estimate of 7.1 percent. This is the second revised estimate for this year.
• For 2015-16, GDP growth has seen a moderate revision to 8 percent in the third revised estimate, from 8.2 percent earlier.

The revisions mean that the average growth over the Narendra Modi-led government’s tenure, starting from 2013-14 to 2018-19, now stands at 7.4 percent compared to 7.16 percent as per the provisional estimates for 2017-18 and the first revised estimates for 2016-17.

In November, the government had released the official back-series for the new GDP series adopted by India. As part of that series, too, there had been sharp revisions in growth trends.

In particular, there were sharp downward revisions in 2009-10 and 2010-11. This brought down the average growth rate during the the UPA-II regime between 2008-09 and 2012-13 to 6 percent, allowing the current government to claim a better economic track record.

What Led To The Revisions?

In 2016-17, the year demonetisation was announced, the revisions came largely from the services sector and the construction industry.

• GVA growth in construction saw a steep revision upward to 6.1 percent from 1.3 percent.
• Financial services GVA growth was revised to 3.6 percent from 1.3 percent earlier.
• As per the revised estimates, real estate and professional services GVA growth rose to 10.8 percent compared to 8 percent in the estimates released earlier.
• Public administration and defense also grew by 12.7 percent according to the revised estimates from 8.6 percent in the provisional estimates.

In 2017-18, a majority of the segment saw upward revisions. In particular, agricultural growth was revised to 5 percent from 3.4 percent. Growth in mining, too, was revised sharply to 5.1 percent from 2.9 percent.

A surprising change on the expenditure side data suggests a surge in private final consumption expenditure during the year of demonetisation.

Private consumption expenditure expanded at 8.2 percent in FY17, but is supposed to have slowed down to 4.2 percent in FY19, highlighted Soumya Kanti Ghosh, chief economic advisor at the State Bank of India. Such a surge in FY17 is possibly because of people using cash for purchases in the early days after demonetisation, Ghosh wrote. That flash in consumption may have died down once the economy was remonetised, he added.

Savings And Investments

The first advance estimates put out on Thursday also provide the first reading of the saving rate in the economy. In 2017-18, the savings rate remained flat.

• The rate of Gross Savings to Gross National Disposable Income for 2017-18 is estimated at 30.1 percent as against 29.9 percent in 2016-17.
• Gross capital formation, a function of gross savings and net capital inflow from abroad, rose to 32.3 percent for 2017-18, compared to 30.9 percent for 2016-17.

The data confirms that an investment recovery began in 2017-18, albeit led by government spending. The fall in savings, which was proving to be a worrying trend for the economy, also stabilised last financial year.