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Q1 GDP data today: All eyes on ‘discrepancies’ and investments

The government will release national income data for April to June on Wednesday. Recent data has thrown up mixed trends suggesting the recovery may not yet be decidedly V-shaped.

business Updated: Aug 31, 2016 11:43 IST
Gaurav Choudhury
GDP

At 7.9% growth in January to March, India remains the world’s fastest growing economy.(Reuters)

The government will release national income data for April to June on Wednesday. Recent data has thrown up mixed trends suggesting the recovery may not yet be decidedly V-shaped.

Here are a few things to watch out for:

Discrepancies

At 7.9% growth in January to March, India remains the world’s fastest growing economy by a mile, ahead of China’s 6.7% growth that has battling an industrial slide.

The quarterly GDP data is important because of the questions surrounding the sharp jump in “discrepancies”, which have baffled experts.

“Real” or inflation-adjusted GDP grew from 7.2% in the October-December 2015 7.9% in the January- March 2016.

This growth has been partly aided by a rapid jump in the item called “discrepancies”.

“Discrepancies” account for the difference between the production side GDP and the expenditure side figures.

Since GDP is the total value of goods and services produced in the country, what people spend should be equivalent to what is produced. One person’s spending is another person’s production.

The “discrepancies” account for the difference between production and expenditure side figures.

At constant prices or inflation-adjusted prices, these discrepancies were Rs.1.43 lakh crore during January to March 2016 compared to Rs.29,933 crore in the same quarter of the previous year, showing a jump of 289%.

Muted Investment

Industrial activity has been inconsistent in recent months.

Factory output, measured by the index of industrial production (IIP), grew at 2.1% June from 1.1% in the previous month. The manufacturing sector, which accounts for two-thirds of the IIP, grew at 0.9% during the month.

Gross Fixed Capital Formation (GFCF), a marker for new capacity additions by firms, contracted by 1.9% in January to March, highlighting the muted trend in private sector investments, as well as, some slowdown in the pace of growth of the government’s capital expenditure in the final quarter of the last fiscal.

Capital goods output, which serves as gauge for additional investment activity, contracted (-)16.5% in June from a decline of (-)12.3% in the previous month, mirroring muted capacity additions.

Such data could be a pointer towards excess capacities—factories have lines of unutilized machinery. This could be partly because companies prefer to first sell off the pile of unsold stock before restarting their unsued production engines.

PAY BONANZA

Households spending more are early signs for the onset of an economy-wide revival. The clearest indications are available in any market or mall.

The recently announced hike in salaries and pensions of 4.8 million central government employees and 5.5 million pensioners and plentiful summer rains can potentially set off a cycle of spending and investment, with people expected to use higher incomes to buy cars and houses.

The government would be hoping that the seventh pay commission recommendations-based hikes will prompt people to spend more and aid the broader economy revival. The last such comprehensive hike in salaries did lead to a sharp increase in consumer spending.

Car and two-wheeler sales, for instance, recorded a sharp surge shortly after the sixth pay panel payouts. The sixth pay commission report was submitted in 2008, with the higher salaries coming into effect retrospectively from January 1, 2006. Passenger vehicle sales went up nearly 20% in 2008-09 and nearly 22% the next year.

MONSOON BOOST

Also, an above-normal monsoon this year could aid economy’s recovery by raising food output, containing food inflation, necessary for overall growth. Normal rains act as a strong check on inflation through abundant food stocks.

When rain-dependent farm output is robust, rural income and therefore spending on almost everything – television sets to gold – goes up. This creates demand for manufactured goods, which, in turn, helps the broader economy. For example, 48% of all motorcycles and 44% of TV sets are sold in rural India. Greater demand on this front will help faster industrial growth.