GDP growth, full year estimates today: 4 things to watch out for


The Central Statistics Office (CSO) will on Tuesday release the gross domestic product (GDP) growth estimates for third quarter (October to December) and the second full year advance estimates for 2016-17.

The first estimates released in January projected that India would grow 7.1 percent in 2016-17 from 7.9 percent in the previous year. These were based on incomplete corporate income and factory output data and did not fully factor in the effects of demonetisation.

Amid signs of slide in consumer goods sales and muted investment activity because of the cash crunch, it is highly likely that the CSO will sharply revise downwards India’s GDP growth in its second advance estimates.

Here are five things to watch out for in the national income data that will be released at 5.30 pm this evening.

1. Four-year low GDP growth?

Will the government officially forecast a sub-6.5 percent GDP growth for 2016-17, the lowest in four years? The second advanced estimates for 2016-17 are widely expected to revise downwards the earlier 7.1 percent GDP growth projection made in January. The data on Tuesday will likely confirm deceleration fears caused by demonetisation.  The previous projections were based on incomplete output and corporate income data, amid signs of faltering investment and weak consumer spending because of restricted access to cash.

2. Q3 growth below 6 percent?

Demonetisation’s worst effects will be reflected in the October-December GDP growth figures as it would factor in the 50-day currency recall period from November 8 to December 31. Many analysts fear that GDP growth in this quarter moderate sharply to below 6 percent. This could pull down the annual GDP growth rate.

3. Smart rebound in Q4?

The government has claimed that remonetisation of the economy is nearly complete and cash has come back to the system. Earlier this month, the Reserve Bank of India (RBI) in its latest monetary policy review has observed that discretionary consumer demand held back by demonetisation is expected to bounce back beginning in the closing months of 2016-17.

It also expects economic activity in cash-intensive sectors such as retail trade, hotels and restaurants, and transportation, as well as in the unorganised sector, will be rapidly restored. Under these assumptions, GDP growth should rebound smartly in the fourth quarter (January to March).

It will be noteworthy to see whether the government’s official statisticians are equally bullish. The fourth quarter growth estimates can be derived from the full in-year projections and the actual growth in the first three quarters.

4. Lower nominal growth?

All eyes will now be on CSO’s nominal GDP growth rate forecast for 2016-17 that would offer cues on how fast the government expects the economy to revive from the demonetisation-induced deceleration.

Real or inflation-adjusted GDP is usually calculated by subtracting the growth in actual or nominal GDP by the inflation rate or “price deflators.” The first estimates (made in January) of 7.1 percent GDP growth in 2016-17 was based on a nominal GDP growth of 11.9 percent.

In the budget documents for 2017-18, however, the government has assumed a nominal GDP growth rate of 11 percent – 90 basis points lower than the CSO estimates. An 11 percent nominal GDP growth in 2016-17 could effectively translate into a real GDP growth rate of about 6.2 percent.

A flat growth in nominal GDP could also mean that, if inflation starts rising because of hardening oil and commodity prices, “real” or “inflation-adjusted” GDP growth rate can fall sharply from the 7 percent-plus trend line in the next year as well.