India's Q4 GDP growth likely to be better than estimates

Indian economy is now estimated to show growth than contraction during January-March (Q4) of FY 2020-21. This will have impact on GDP (Gross Domestic Product) estimate for full fiscal.

National Statistical Office (NSO) will release GDP number for Q4 as well as for full FY 21 on May 31. First two quarters (April-June and July-September) of last fiscal recorded contraction of 24.4 per cent 7.3 per cent respectively, while third quarter (October-December) registered a growth of 0.4 per cent.

Now, using is ‘Nowcasting Model’ (based on 41 high frequency indicators associated with industrial activity, service activity and global economy), SBI economic research team estimates GDP growth at 1.3 per cent during Q4 but with downward bias. “Interestingly, had India's growth rate crossed 1.7 per cent in Q4FY21, India would have been the second fastest country after China in terms of GDP growth, and going by our estimate of 1.3 per cent GDP growth India would still be the 5th fastest growing country amongst 25 countries (that have released their GDP numbers so far),” a report released by research team on Tuesday said.

Research firm QuantEco Research estimates annualized GVA (Gross Value Added, GVA = GDP + Subsidies -Taxes) growth in Q4 to have expanded by 3.2 per cent, led by stronger pickup in industry of which manufacturing and construction sub-sectors are expected to perform well. In comparison, despite turnaround in services growth into positive (after a hiatus of three quarters), its contribution to headline growth will remain muted. The rebound in corporate earnings seen so far led by steady consumption and cost rationalisation, gives credence to Q4 estimates.

“The divergence in GDP vis-à-vis GVA is however likely to be more pronounced, with the one-time food subsidy adjustment announced in the Budget getting reflected. Merely as a statistical/accounting outcome, GDP growth is estimated to contract by -0.4 per cent in Q4,” Yuvika Singhal, Economist at QuantEco Research.

Further she mentioned that while GDP is a broader measure but given the unusual circumstances, a narrower focus on GVA to gauge economic activity may be more appropriate this time. Further, “our Q4 estimates for both GVA and GDP are better than NSO’s implied advance estimates released in late Feb-21, underscoring a stronger economic momentum,” she said.

Based on numbers of three quarters, NSO’s implied advance estimate for Q4 was 1 per cent. Earlier RBI projected growth rate of 0.7 per cent during Q4.

Estimate for full fiscal

SBI’s report has revised its contraction forecast a tad for full FY 21. “We now expect GDP decline for the full year to be around (-) 7.3 per cent,” it said. Its earlier prediction was 7.4 per cent. It may be noted that NSO’s prediction is (-) 8 per cent while RBI expects economy to contract by 7.5 per cent.

For the full year, QuantEco expects annualized GVA and GDP growth at (-) 6.3 per cent and (-)7.8 per cent respectively. Growth estimates for past quarters, in CSO’s own admission are “likely to undergo sharp revisions” due to the impact of the pandemic on data collection mechanisms, the report mentioned.

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