The Indian economy which was expected to grow at 5% in 2019-20, will now be growing at 5.7%.
This upward revision of 70 basis points (bps) is not because the Indian economy will do better than expected in the current fiscal year.
One basis point is one hundredth of a percentage point.
Instead, this is a pure base effect. The National Statistical Office (NSO) released first revised estimates of GDP for 2018-19 on Friday, and the GDP growth rate has been brought down from 6.8% to 6.1%.
Analysts HT spoke to, said that a 70bps downward revision in GDP growth figures is unprecedented. Because the 2018-19 GDP figure is now lower than what it was thought to be, corresponding GDP figures for 2019-20 will now be higher.
Still, the revision shows that the slowdown in the economy started earlier than previously believed.
A sector-wise breakdown of the revised numbers shows that the primary and secondary sector; which mainly comprise of agriculture and industry, are responsible for the downward revision. Value added growth in the primary sector has been brought down from 2.7% to 1%, and secondary sector growth has been brought down by 150bps to 6%. Tertiary sector growth has actually gone up by 20bps to 7.7%.
The revised figures also give second revised estimates for 2017-18 and third revised estimates for 2016-17. While GDP growth has been revised upwards from 8.2% to 8.3% for 2016-17, it has been brought down from 7.2% to 7% for 2017-18.
“The biggest difference between the earlier figures and first revised estimates is that the latter uses the full MCA-21 database”, said Pronab Sen, India’s former chief statistician, referring to the ministry of corporate affairs’ company database. “The downward revision in growth figures could increase further once the informal sector numbers are included in latter revisions, and it only vindicates some of us who have been arguing that the roots of the current slowdown lie in the shock to the informal sector because of demonetisation and goods and services tax”, Sen added.
Friday’s sharp downward revision in GDP growth rate for 2018-19 will not have an impact on fiscal deficit numbers for the current year, as these will be calculated on the basis of this year’s GDP numbers, which have not changed. However, this could lead to a significant change in Actual Estimate numbers for 2018-19, which will be presented along with the budget.
They are also likely to ignite a debate about the duration and magnitude of the current slowdown in the Indian economy, as the numbers now suggest a worse growth performance going back to 2017-18. This will only increase the controversy around the credibility of India’s official statistics and whether or not they represent the real pain the economy.
Core sector data
Meanwhile, growth of eight core industries recovered to 1.3% in December 2019 after remaining in the negative zone in the previous four months, helped by expansion in the production of coal, fertiliser and refinery products.
Separately, the government’s fiscal deficit touched 132.4% of the full-year target at December-end mainly due to slower pace of revenue collections, official data showed on Friday.
