The projections are crucial as the finance ministry prepares Budget estimates for the next financial year (2018-19)

the economy turned the corner? Are households buying more goods and services? Are factories adding more capacity lines to meet growing demand? Are companies hiring more people? Will the Indian economy regain its lost status as the world’s fastest growing major economy? Has the economy weathered the transitional impact of goods and services tax (GST), or does the new system continue to disrupt trading and factory output?

The government’s national income statistics will have the answers to these questions.

The Central Statistics Office (CSO) will release the advanced gross domestic product (GDP) growth estimates for 2017-18 at 5.30 pm today. The projections are crucial as the finance ministry prepares Budget estimates for the next financial year (2018-19).

#Back to 7 percent plus growth rate?

These will be the first official full-year growth estimates after GST’s rollout. The projections, therefore, will factor in the extent to which mid-year switch to a new indirect system would have slowed down the rapidity in the overall economy’s expansion.

The Indian economy grew 6.3 percent in July-September, recovering from a three-year low growth slump of 5.7 percent in April-June. Companies have considerably scaled up production and restocked supplies after goods and services tax (GST) kicked in from July 1.

Firms and traders had emptied out inventories to carry over as little old stock as possible into July, triggering an unexpected mid-year pre-GST "sale" season on many products at heavy price markdowns. This had pulled down the overall growth to a 13-quarter low of 5.7 percent in April-June. Taken together, India’s "real" or inflation-adjusted GDP grew 6 percent in April-September.

There is widespread expectation that growth may rebound to more than 7 percent in October-April. A full year estimate of more than 6.5 percent would imply that official statisticians believe that economy would grow at more than 7 percent between October to March.

India’s GDP grew 7.1 percent in 2016-17. Will India close the current year (2017-18) at an annual growth rate at above 7 percent? To achieve this, real GDP will have to grow at an average of at least 8 percent in October-March. This is unlikely, despite the rebound seen in consumption spending and investment in November and December.

#Data detail

Analysts will also keenly examine the data used for calculating the advance GDP estimates.

The projections on Friday would be based on incomplete output and corporate income data. While factory output data, measured by the index of industrial production (IIP) is available only up to October, most companies are yet to declare their third quarter results, making it difficult for official statisticians to gauge the speed of economic expansion.

The sector-wise estimates will likely be obtained by extrapolation of indicators like the IIP of first 7 months of the financial year and financial performance of listed companies in the private corporate sector available upto quarter ending September, 2017.

The data will be based on the first advance estimates of crop production information on indicators like GST collections, deposits and credits, passenger and freight earnings of railways, passengers and cargo handled by civil aviation, cargo handled at major sea ports and sales of commercial vehicles available for the first seven months of the financial year.

This could make the estimates subject to significant revisions when the provisional full year estimates are released in May.

#GVA versus GDP

All eyes will be on the government’s estimates of gross value added (GVA), which is GDP minus net taxes. GVA is a more realistic guide to measure changes in the aggregate value of goods and services produced in an economy.

Based on initial trends, GST collections have slowed down in November, which could slow down GDP growth. The CSO could actually estimate a faster GVA expansion in the final two quarters, implying but for slower-than-expected GST tax revenue collections, overall growth could have been faster.

GVA grew 6.1 percent in July-September, mirroring revival in production activity in factories. GVA growth had significantly fallen in the previous few quarters, slipping to 5.6 percent in April-June.

The national income projections on Friday will be the first full-year data giving out GDP estimates based on new GST tax estimates. With GST kicking in from July 1, and tax return filing still not smoothening out, official statisticians may have to rely on approximations to measure changes in India’s GDP in the absence of past tax collection data on a comparable scale.

#Nominal versus Real GDP

GST’s inflationary impact is still unknown. CSO gives out both the "real" or inflation-adjusted GDP figures as well as the nominal or current price numbers.

Analysts will also be keenly watching the CSO’s nominal GDP growth rate estimates for the full year of 2017-18, for cues on GST’s inflationary impact. Real or inflation-adjusted GDP is usually calculated by subtracting the growth in actual or nominal GDP by the inflation rate or "price deflators."

A flat or moderate growth in real GDP could also mean that GST may have had pushed up overall prices in the economy. On other hand, a higher real GDP growth could well be an indicator about GST’s minimal impact on prices of goods and services.

 05 Jan 2018, 12:29 PM