How to read today’s GDP numbers?
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.
Base effect will continue to play a big role in the GDP growth numbers
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 because of the 68-day nationwide lockdown that began on March 25, 2020. India’s GDP suffered a contraction of 24.4% and 7.4% in the quarters ending June 2020 and September 2020.
Economic activity inched back to normal with a GDP growth of 0.5% and 1.6% in the quarters ending December 2020 and March 2021. While GDP growth in the June quarter was 20.1%, in absolute terms, GDP was lower than that in the corresponding pre-pandemic quarter of June 2019.
The economic disruption due to the second wave of Covid-19, which it peaked on May 9 in terms of seven-day average of daily new cases, played a major role in derailing economic momentum once again in the June quarter. If the central bank’s projection of 7.9% holds for the September quarter, GDP for the quarter ( ₹35.56 lakh crore at 2011-12 prices) will still be marginally lower than that in the September 2019 (35.61 lakh crore). However, if the Bloomberg projection holds, the September number (35.63 lakh crore) will be higher than the pre-pandemic value. This small difference notwithstanding, the base effect should be kept in mind while reading the growth numbers.
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.