How to read today’s GDP numbers?

Rural wages, which are a bellwether for blue-collar employment, had not recovered to pre-pandemic levels until August, the latest period for which data is available.

The National Statistical Office (NSO) will release GDP data for the July-September quarter of the current fiscal year today. In its October meeting, the Reserve Bank of India’s Monetary Policy Committee projected a GDP growth of 7.9% for this period. A Bloomberg forecast of 14 economists has projected the number to be 8.1%. The headline number aside, how should one read today’s GDP numbers? Here are five charts that answer this question.

India’s GDP fell by a record 7.3% in 2020-21. This was largely on account of the massive contraction in the first half (April-September) in 2020-21 (MINT_PRINT)

Base effect will continue to play a big

Growth by sectors will be far more interesting

The pandemic did not affect all parts of the economy the same way. Agriculture, for example, did not suffer a contraction even when the lockdown was the harshest. Sectors such as finance and knowledge based services – it was the easiest for them to shift to remote work methods – did not suffer much during the pandemic.

On the other hand, contact intensive services suffered the most. This is best seen in a comparison of June 2019 Gross Value Added (GVA) numbers by sectors with the June figures. It shows a great variation in the extent of recovery, or lack of it, across sectors. It will be worth watching for in the September GVA numbers as well. The sector-wise nature of recovery matters because the employment intensity of sectors varies significantly.

High frequency indicators suggest the formal economy did well in the September quarter

If high frequency indicators such as Purchasing Managers’ Index (PMI) and Nomura India Business Resumption Index (NIBRI) are any indicators, the formal economy made a strong comeback from the disruption from the second wave of the pandemic. PMI Manufacturing fell to 48.1 in June but jumped to 55.3 in July and has stayed above the critical threshold of 50 since then. A reading above 50 shows expansion. PMI Services also jumped above 50 in August. NIBRI crossed the psychological threshold of 100 for the first time after the pandemic in the week ending August 15 and has stayed above 100 since then.

These numbers might not tell the informal sector story

The gap between formal and informal parts of the Indian economy has widened in the post-pandemic period. Some statistics that offer a good proxy for the state of the informal economy, especially its labour markets, suggest that this gap might have persisted during the September quarter as well.

Demand for rural jobs guarantee work has not declined despite a sharp recovery in formal sector high frequency indicators. Rural wages, which are a bellwether for blue-collar employment, had not recovered to pre-pandemic levels until August, the latest period for which data is available. Informal sector numbers take time to show in the GDP statistics, and today’s numbers must be read with this caveat in mind.