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Should the RBI’s research department stop its so-called ‘nowcasts’? After all, its nowcast of GDP growth for the third quarter of 2023-24 was 7 percent, and it came in at a much higher 8.4 percent. The median estimate of the RBI’s professional forecasters for Q3 GDP growth was even further off the mark, at 6.5 percent. In fact, growth was far stronger than in the wildest dreams of economists, forget about their estimates. This is not just a positive surprise; it is a jaw-dropping one.
To be fair, though, the new growth numbers are partly the result of revisions, re-revisions and re-re-revisions in earlier GDP data, which have changed the growth numbers and sent estimates haywire. But the fact remains that the real GDP as well as the real GVA numbers for 2023-24 have all been revised upwards. The economy is certainly doing better than almost everybody thought.
Or is it? The nominal GDP as well as the GVA figures are lower than in the first advance estimates.
After all the revisions, GDP at constant prices for 2023-24 is now pegged at Rs 173 lakh crore, compared to Rs 172 lakh crore in the first advance estimates. That was enough to change the real GDP growth estimate for the current year from 7.3 percent to 7.6 percent.
Despite the higher overall real GDP figure, real private consumption in 2023-24 is now estimated to be lower than in the first advance estimate. Year-on year growth in private consumption is now pegged at 3 percent versus 4.4 percent earlier.
Even gross fixed capital formation for 2023-24, at constant prices, is now estimated to be lower than in the first advance estimate. But the figure for ‘valuables’ or gold and silver and other jewellery, is now estimated to be 31.7 percent higher than in the first advance estimates, an extraordinary revision. Have people suddenly started splurging on jewellery?
Exports are estimated a bit higher while imports are now believed to be substantially lower than initial estimates, which means the external component of GDP growth is in better shape than anticipated.
What are the drivers of GDP growth in 2023-24? The accompanying Table 1 shows that the biggest contribution came from ‘discrepancies’ — a mind-boggling 55 percent — followed by gross capital formation. Private consumption contributed less than a quarter. The discrepancy numbers will be redistributed among the other heads after further revisions and re-revisions, but where and to what extent will remain a mystery for a long while.
As things stand at present, though, growth is clearly being driven by capex. Gross fixed capital formation, at 34.08 percent of GDP in 2023-24, is the highest since 2012-13. The share of private consumption, on the other hand, is at 55.55 percent of GDP, the lowest since 2010-11.
It's far better, though, to look at the Gross Value Added numbers, which are not tainted by ‘discrepancies’. Real GVA growth for 2023-24, incidentally, is pegged at the same level as in the first advance estimates, at 6.9 percent.
Table 2 shows us that manufacturing has contributed around a fifth of GVA growth in 2023-24, though the biggest contributor continues to be ‘financial services, real estate and professional services’. Agriculture and allied sectors did terribly, which explains the sluggishness in rural demand and the drag on private consumption.
What about growth in Q3? The Real GDP data show that growth has gone up to a staggering 8.4 percent from an already high 8.1 percent in Q2. That suggests growth is accelerating. But the Real GVA data show that growth has fallen to 6.5 percent from 7.7 percent in Q2. That suggests growth is decelerating. Take your pick.
Taking the Q3 real GVA data, the only sectors that are showing higher growth than in Q2 are ‘Financial services, real estate and professional services’ and ‘trade, hotels, transport, communication and broadcasting services’. Agriculture has seen a contraction from a year ago.
Are any trends discernible from the new numbers? The distress in agriculture is clearly visible, despite all the brave talk of El Nino not having much of an effect. That has been offset in part by strong growth in real estate and construction and in the trade and transport sectors, which are big sources of jobs for the masses. But the data reiterate that consumption growth is weak.
Why is there such a big difference between the GDP and GVA growth figures? Barclays economist Rahul Bajoria says it is because of reduced transfer payments, which led to higher net taxes.
The revised GDP and GVA data show that, despite the rate hikes, despite the slowdown in global growth and in spite of tepid consumption growth, the Indian economy is booming. What explains this extraordinary resilience? Could it be the rise in government gross debt, estimated to have gone up from 70.4 percent of GDP in 2018-19 to 81.9 percent in 2023-24, according to IMF estimates? The general government deficit has gone up from 6.4 percent of GDP in 2018-19 to 8.8 percent in 2023-24. Could it be loose financial conditions? The yield on the 10-year government bond is now lower than what it was back in April 2022, when the repo rate was at 4 percent, despite it being 6.5 percent now. Or could it be because we have entered Amrit Kaal? Whatever be the reason, the economy can only do better once rural demand comes back and corporate capex picks up. Gaurav Kapur, chief economist at IndusInd Bank, says: “The growth momentum seen in recent quarters driven by investment, is likely to sustain over the next fiscal year and gain support if rural demand recovers aided by normal monsoons in 2024.”
There is, though, one worrying bit of data. The new GDP and GVA numbers imply a big slowdown in growth in the current quarter. Taking the full year estimates and those for the first three quarters of the fiscal year, Q4 GDP growth comes to a mere 5.9 percent while GVA growth is pegged at 5.4 percent.
But then, of course, they could easily be revised upwards.
Note: An earlier version of this article carried an error in the absolute GDP number, which has been corrected.
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