Nominal GDP Growth slows to 7.2% – India Fiscal 2019 - 20 GDP Growth

Understanding the GDP Numbers after Base Year Change

The Indian economy grew by 4.2% in FY20 (fiscal year that ended in March-2020).GDP at Constant (2011-12) prices in Q4FY20 is estimated at Rs 38.04 trillion, as against ₹ 36.90 trillion in Q4FY199, showing a growth of 3.1%.

1. CSO will now report ‘gross value added’ (GVA) at basic prices for industry-level GDP instead of GDP at factor cost that it earlier released. What does it mean?

a) GVA at basic prices = GVA at factor cost + net production taxes
where net production taxes = production taxes – production subsidies

Production taxes are levied as lump sum taxes on production and do not depend on the volume of production. Examples include land revenues, stamp and registration fees, and professional taxes.
Production subsidies are generally subsidies paid to producers on inputs to lower the cost of production. Eg; subsidies to farmers, small and village enterprises, and railways so on.

GVA at factor cost is the same as GDP at factor cost that CSO used to report earlier.

b) GVA at basic prices = compensation of employees + operating surplus/mixed income + consumption of fixed capital (depreciation)

In short, GVA at basic prices uses the income method for GDP calculation – it is sum of income earned by the factors of production, namely labour and capital. This gives valuable information about the share of labour and capital in each industry and in the national income.

These changes are in line with the internationally followed methodology for calculating GDP. For 2013-14, real GVA at basic prices (with 2011-12 base) has been estimated at Rs 91.7 trillion

2. CSO will now on refer to ‘GDP at market prices’ as ‘GDP’

GDP at market prices (GDP) = sum of GVA at basic prices for all industries + net product taxes
where net product taxes = product taxes – product subsidies

Product taxes and subsidies are levied on per unit of production. Examples of product taxes are excise tax, sales tax, service tax and custom duties. Product subsidies are food, fertilizer, petroleum subsidies, interest and insurance subsidies to farmers and households
For 2013-14, real GDP at market prices (with 2011-12 base) has been estimated at Rs 99.2 trillion. For 2013-14, nominal GDP at market prices (with 2011-12 base) has been estimated at a level similar to the earlier estimate with the 2004-05 base – around Rs 113 trillion. Therefore, at the current prices, the size of the economy remains largely unchanged.

3. What are the other changes that CSO has done to the methodology and coverage of calculating GDP?

a) CSO has incorporated updated information from its sources – improved coverage of local bodies, incorporation of the NSS surveys on un-incorporated enterprises and the employment-unemployment surveys
b) incorporated new sources of data – expansion of the coverage for industry and services firms using data filed by companies under the Ministry and Commerce e-governance initiative
c) Additional changes to the methodology for calculating the sub-components of GDP – For example; trade carried out by the manufacturing companies is now the part of the manufacturing sector which was earlier covered in ‘trade’ under the services sector.

4. With the above changes, what was the GDP growth last year?

As per the new estimates, real GDP grew by 6.9% in 2013-14 compared to the earlier estimate of 5%. The upward revision in growth came from revision in manufacturing and mining growth. As per the earlier estimates, both of these sectors had recorded negative growth in 2013-14, but are now estimated to have grown over 5% last year. As a result, the share of industry (mining, manufacturing, utilities and construction) was upwardly revised to nearly 32% for 2013-14.

5. How have GDP growth estimates from the demand-side altered with the revisions?

With these changes in place, CSO has now not only revised the GDP estimates for the past three years, but also released valuable and more detailed information than available earlier at the industry-level and also for the pattern of consumption expenditure, savings and capital formation. It will be useful if CSO released the back-series for the earlier years’ as per the new method, so that a longer time-series is available to the policymakers, investors and researchers.As per the new estimates, fixed investment grew by 3.0% last year compared to the earlier estimate of 0.2%. Similarly, both growth in private consumption and government consumption have been revised up significantly.

6.What are the implications of these revisions for the monetary policy?

With these significantly upward revisions in GDP, the inevitable question which arises is in terms of its implication for the policies, especially the monetary policy. RBI in its 3^rd February 2015 policy review indicated that it is reviewing the new GDP numbers and will then start using it for policy reference.

India’s GDP Growth – Previous Quarters

India GDP for 3rd Quarter Of Fiscal 2019-20 by Economic Activity

Q3FY20 - Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth

Q3FY20 - Real GDP from the demand-side (2011-12 base)

India’s GDP at current prices is estimated to have grown by 7.5% for fiscal 2019-20 as per the first advance GDP report published by the CSO. In fiscal 2018-19 nominal GDP growth was 11.2%. Fall in nominal GDP can impact government finances. The higher nominal GDP growth is required for India to service its debt and keep fiscal deficit ratios under control. For fiscal 2019-20, the budgeted forecast for nominal GDP growth was 12%. Fiscal deficit was pegged at 3.3% of GDP for fiscal year 2019-20.

India’s real GDP growth for fiscal 2018-19 has been revised downwards to 5% from budget forecasts. GDP growth was at 6.8% in 2018-19.

Fiscal deficit at new nominal GDP estimates assuming that it is higher by Rs 500 bn for this fiscal year 2is  calculated at 3.6873% for fiscal year 2019-20.

First Advance Estimates for India GDP for Fiscal 2019-20 by Economic Activity

GVA or Gross Value Add at basic price (GVA at basic prices = GVA at factor cost + net production taxes where net production taxes = production taxes – production subsidies) is estimated to grow by 4.9% for fiscal 2019-20 against 6.6% in the previous fiscal. Agriculture growth expected at 2.8% (2.9% growth seen in the fiscal 2018-19). Mining and quarrying expected to be picked up at 1.5% (1.3%), Manufacturing expected to weaker to 2% (6.9%),electricity expected to show slower growth against previous year at 5.4% (7.0%) and construction growth estimated  at 3.2% (8.7%).  In the services sector, trade, hotels, transport, communication & services related to broadcasting growth to slow down at 5.9% (6.9%), financial, real estate & professional services growth to be at 6.4% (7.4%) and public administration, defence and other services growth higher expected at 9.1% (8.6%).

India First Advance Estimates of Fiscal 2019-20 GDP by Expenditure

Private Final Consumption Expenditure (PFCE) at constant (2011-12) prices is estimated at 57.4% for fiscal 2019- 56.9% for fiscal 2018-19. Government Final Consumption Expenditure (GFCE) is estimated at 11.3% ( 10.7%). Gross Fixed Capital Formation (GFCF) is estimated at 31.1% (32.3%).

India’s GDP growth for the 2nd quarter of fiscal 2019-20 came in at 4.5% against the previous year’s first quarter growth of 7.0%. Nominal GDP grew by 6.1% against 12.0% in the previous year and 8% in the  first quarter of fiscal 2019-20.The government has forecast nominal GDP growth at 11.5% for fiscal 2019-20

India’s Real GDP growth for fiscal 2019-20 has been revised downwards to 6.1% from budget forecasts by RBI.

India 2nd quarter  2019-20 GDP by Economic Activity

GDP at constant (2011-12) prices grew at 4.5% for the second quarter of fiscal 2019-20 against growth rate of 7% seen in the second quarter of fiscal 2018-19.GVA or Gross Value Add at basic price (GVA at basic prices = GVA at factor cost + net production taxes where net production taxes = production taxes – production subsidies) grew by 4.9%.

In second quarter 2019-20, agriculture grew by 2.1% against 2% growth seen in the first quarter of 2019-20. Mining and quarrying grew 0.1% against a growth of 2.7%, Manufacturing growth  contracted at -0.1% against 0.6%, electricity,gas,water supply and other utility services expanded by 3.6% against 8.6% and construction growth was at 3.3% against 5.7%. In the services sector, trade, hotels, transport, communication & services related to broadcasting growth slowed to 4.8% against 7.1%, financial, real estate & professional services growth rose by 5.8% against 5.9% and public administration, defence and other services picked up by 11.6% against 8.5%.

India 2nd quarter 2019-20 by Expenditure

Private Final Consumption Expenditure (PFCE) at constant (2011-12) prices is estimated at 56.3% for the second quarter of fiscal 2019-20 against 55.1% for the first quarter of fiscal 2019-20. Government Final Consumption Expenditure (GFCE) is estimated at 13.1% against 11.8%. Gross Fixed Capital Formation ( GFCF) is estimated at 30.1% against 32.5%.

Q2FY20 Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth

Q2FY20 Real GDP from the demand-side (2011-12 base)

India 1st quarter  2019-20 GDP by Economic Activity

GDP at constant (2011-12) prices grew at 5% for the first quarter of fiscal 2019-20 against growth rate of 5.8% seen in the first quarter of fiscal 2018-19.  GVA or Gross Value Add at basic price (GVA at basic prices = GVA at factor cost + net production taxes where net production taxes = production taxes – production subsidies) grew by 4.9%.

In first quarter 2019-20 agriculture grew by 2% against 0.1% degrowth seen in the fourth quarter of 2018-19. Mining and quarrying grew 2.7% against a growth of 4.2%, Manufacturing growth was slower at 0.6% against 3.1%, electricity,gas,water supply and other utility services expanded slowly by 8.6% against 4.3% and construction growth was at 5.7% against 7.1%.In the services sector, trade, hotels, transport, communication & services related to broadcasting growth slowed to 7.1% against 6.0%, financial, real estate & professional services growth rose by 5.9% against 9.5% and public administration, defence and other services picked up to 8.5% against 10.7%.

India 1st quarter 2019-20 by Expenditure

Private Final Consumption Expenditure (PFCE) at constant (2011-12) prices is estimated at 55.1% for the first quarter of fiscal 2019-20 against 59.75% for the fourth quarter of fiscal 2018-19. Government Final Consumption Expenditure (GFCE) is estimated at 11.8% against 13.11%. Gross Fixed Capital Formation ( GFCF) is estimated at 32.5% against 30.7%.

For fiscal 2018-19, nominal GDP growth remained flat at 11.2% against 11.3% in fiscal 2017-18.All sectors, except Agriculture, from   Mining & Quarrying, Manufacturing, Electricity, Gas, Water Supply and Other Utility Services, Construction, Trade, Hotels, Transport, Communication and Services Related to Broadcasting,Financial, Real Estate & Professional Services, and Public Administration to Defense and Other Services’ have posted growth rate of over 9.0% and above at Current Prices against fiscal 2017-18.

India’s Real GDP growth for fiscal 2018-19 came in at 6.8% against 7.2% in previous year.

 Q4FY19 Real GDP from the supply side (2011-12 base)

Q4FY19 Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth

Q4FY19 Real GDP from the demand-side (2011-12 base)

India’s GDP growth for the 4th quarter of fiscal 2018-19 came in at 5.8% against the previous year fourth quarter growth was 8.1%.Nominal GDP grew by 9.4% against 11.5% in the previous year and 11.0% in third quarter of fiscal 2018-19.The government has forecast nominal GDP growth at 11.5% for fiscal 2019-20

India’s Real GDP growth for fiscal 2019-20 has been revised downwards to 7.0% from budget forecasts by RBI.

India 4th  quarter 2018-19 by Economic Activity

GDP at constant (2011-12) prices grew at 5.8% for the fourth quarter of fiscal 2018-19 against growth rate of 6.6% seen in the third quarter of fiscal 2018-19. GVA or Gross Value Add at basic price (GVA at basic prices = GVA at factor cost + net production taxes where net production taxes = production taxes – production subsidies) grew by 5.7%.

Agriculture degrew by 0.1% against 2.8% growth seen in the third quarter of 2018-19. Mining and quarrying grew 4.2% against a growth of 1.8%, Manufacturing growth was at 3.1%  against 6.4%, electricity,gas,water supply and other utility services expanded slowly by 4.3% against 8.3% and construction growth was at 7.1% against 9.7%.In the services sector, trade, hotels, transport, communication & services related to broadcasting growth slowed to 6.0% against 6.9%, financial, real estate & professional services growth rose by 9.5% against 7.2% and public administration, defence and other services picked up to 10.7% against 7.5%.

India 4th quarter  2018-19 GDP by Expenditure

Private Final Consumption Expenditure (PFCE) at constant (2011-12) prices is estimated at 59.75% for the fourth quarter of fiscal 2018-19 against 59.06% for the third quarter of fiscal 2018-19. Government Final Consumption Expenditure (GFCE) is estimated at 13.11% against 9.74%. Gross Fixed Capital Formation ( GFCF) is estimated at 30.70 % against 33.07%.

 Q4FY19 Real GDP from the supply side (2011-12 base)

Q4FY19 Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth

Q4FY19 Real GDP from the demand-side (2011-12 base)

FY17 Real GDP from the supply side (2011-12 base)

 FY17 Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth

FY17 Real GDP from the demand-side (2011-12 base)

Q2 FY17 Real GDP from the supply side (2011-12 base)

Q2 FY17 Sub-components of the supply side-GDP (2011-12 base), % y-o-y growth