Why did economists miss the January-March GDP growth upswing?

High interest rates and relatively higher inflation may have dampened consumer confidence

The release of India’s gross domestic product (GDP) numbers for January-March took everyone by surprise, albeit a positive one. Growth in the final quarter of the last fiscal year stood at an impressive 6.1 percent, a whole one percentage point higher than the consensus expectation.

In fact, a few economists had predicted growth of as low as 4.4 percent, while the highest estimate in a Moneycontrol poll was 5.5 percent.

So what caused the underestimation?

Better manufacturing, agriculture growth

Firstly, the rebound in manufacturing was much more than expected.

Manufacturing’s gross value added (GVA) rose by 4.5 percent year-on-year (YoY) in January-March, after posting a contraction in the last two quarters.

Agriculture growth also surprised on the upside despite concerns that excessive summer temperatures and unseasonal rainfall would hit crop output. The sector’s GVA grew 5.5 percent on YoY basis in the quarter under consideration.

Also Read | Chief Economic Adviser Nageswaran bullish about growth prospects after blowout GDP data

A few anomalies

However, some economists pointed out that the GDP numbers seemed to have anomalies, which also, in hindsight, could have caused them to underestimate the headline growth.

There was a big gap between GDP growth and GVA growth, with GVA growth outdoing GDP growth by a wide margin. This indicates that net indirect taxes, adjusted for subsidies, fell in the quarter, according to Madhavi Arora, Lead Economist at Emkay Global Financial Services.

Also, the GDP numbers were slightly confusing.

“The production side doesn’t seem to be matching up with the expenditure side,” Indranil Pan, Chief Economist at Yes Bank, said.

“On the production side, you have services and manufacturing performing well but on the expenditure side you have the private final consumption expenditure, which is not showing too much of a traction,” he added.