Q1 GDP data at 5.30 pm today: 5 things to watch out for

# GVA versus GDP

All eyes will be on the government’s estimates of gross value added (GVA). GVA, which is GDP minus net taxes, serves as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the country. GVA growth has significantly fallen in the last few quarters, slipping to 5.6 percent in January-March, suggesting that the slowdown might be sharper than what the headline GDP growth numbers suggest.

The demonetisation effect and the resultant slowdown in household spending and corporate investment may well be hiding in the steeper fall in GVA growth estimates compared to GDP.

Higher indirect tax collections in April-June 2017-18 may also partly explain the more bullish GDP growth forecasts compared to GVA.

# Impact of GST destocking

India witnessed one of the biggest one-off sale season ahead of the rollout of goods and services tax (GST) from July 1. A mid-year switchover to GST have prompted anxious shops and companies to de-stock and clear up the inventory pile ahead of the new system’s kick off.

Companies had significantly cut back production in June as part of a business strategy to carry over as little old stock as possible into July. Nobody was quite sure whether prices will rise, fall or remain the same after GST, which partly explains the jostle to drain out old stocks at heavy price markdowns.

The scale down in production could have a bearing on the overall GDP growth numbers.

#Back to fastest growing?

India’s GDP grew 6.1 percent in January-March, indicating that the economy is still smarting under the demonetisation shock that the sudden flush out of high-value notes and restricted cash access had caused on household spending and corporate investment.

India also lost its status of fastest growing major economy, slipping sharply behind China’s 6.9 percent growth in January-March 2017. China grew at an identical 6.9 percent in April-June as well. All eyes will be on India’s growth numbers. Quarterly growth will have to push close to 7 percent to surpass China, implying a nearly 1 percentage jump over the previous quarter’s expansion.

Also read: GDP expands at 7.1% in FY17, but slows to 6.1% in Q4 as demonetisation bites

#Tax accounting change

The April-June 2017 GDP data, in all probability, the last set of data using estimates from the older indirect tax system. With GST kicking in from July 1, official statisticians are still grappling with the question on how to measure changes in India’s gross domestic product (GDP) in the absence of past tax collection data.

GST has consolidated a welter of local and central levies such as value added tax, excise and service tax into a single levy. This has made inter-period tax collections difficult to compare.

India has moved to a gross value added (GVA)-based accounting system for national accounts and GDP since 2014.

GDP, by definition, is the total value of goods and services produced in the country. GVA, on other hand, is GDP minus taxes. It serves as a more realistic proxy to measure changes in the aggregate value seen through the prism of cost of production.

The indirect tax overhaul because of GST, however, has meant that the central statistics office (CSO) will have to rely on approximations to put out the GDP calculations for at least the next four quarters.

Also read: New GST worry: Measuring GDP growth without past tax collection data

#Nominal versus Real GDP

Analysts will also be keenly watching the CSO’s nominal GDP growth rate estimates for April-June that would offer cues on how fast the economy has revived 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.”

A flat growth in nominal GDP could also mean that, if inflation starts rising because of GST or hardening of oil and commodity prices, “real” or “inflation-adjusted” GDP growth rate can fall in the coming quarters.

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. GST’s rollout and the subsequent revision in inflation data may force alternation in the “GDP deflator” that statisticians use to compute price-adjusted national income numbers.