MoSPI data may rely on proxies, understate GDP shrinkage in Q1: Experts

India Ratings recently raised the rate of contraction to 17.03 per cent for the period against its earlier estimation of 13.6 per cent.
Estimates of decline in gross domestic product (GDP) in the first quarter of 2020-21 are going up to 35 per cent due to the impact of lockdown amid the pandemic, but the statistics office may show only a 15-16 per cent fall because it does not have the data on the informal sector and uses proxies for that.

India recorded a contraction in the economy some four decades ago. Former chief statistician Pronab Sen projected the GDP contraction to be at least 25 per cent, and that can go up to 35 per cent.

However, he cautioned that the National Statistical Office (NSO) might come up with a much lower contraction at 15-16 per cent because corporate data will be used as proxy for the informal sector.

ICRA Principal Economist Aditi Nayar, who has estimated the GDP fall at 25 per cent, said: “We caution that the divergence in the performance of the formal and informal sectors may not get fully represented in the GDP data, given the lack of adequate proxies for the latter.” She said the lockdown and the gradual unlock in many states contributed to a sharp 40.7 per cent year-on-year contraction in manufacturing volumes. “In addition to lower raw material prices, pared employee costs and other cost-cutting measures appear to have protected the margins of various listed companies as compared to our earlier expectations of the impact of the lockdown on profitability,” Nayar said.

However, cost-cutting measures would depress the revenues and margins of other producers, including micro, small, and medium enterprises, for many of which the data may be available with a lag at best, and may not, therefore, get captured in the initial estimates of the NSO, she said.

SBI group Chief Economic Advisor Soumya Kanti Ghosh assessed that GDP might have fallen by 16.5 per cent in Q1 against his earlier projection of over 30 per cent.  He said de-growth in corporate gross value added (GVA) was significantly better than revenue de-growth in Q1FY21 as far as the results of the listed companies were concerned. In principle, the fall in revenue in listed firms has been far outstripped by cost rationalisation, due to which the margins have not been hit, he said. 

However, rural recovery is unlikely to support such pace in subsequent quarters because overall per capita monthly expenditure in urban areas is at least 1.8 times that in rural areas and rural wage growth in real terms might still be negative.

India Ratings recently raised the rate of fall to 17.03 per cent for the period against its earlier estimate of 13.6 per cent.“Business disruption from March to May has been so severe for production, supply/trade, and activities, especially in sectors such as aviation, tourism, hotels and hospitality, that FY21 GDP growth is expected to contract for the first time since FY80,” said Devendra Pant, chief economist at India Ratings.

Although non-agricultural activities are limping back, they are much lower than pre-pandemic levels, he said.

CARE Ratings Chief Economist Madan Sabnavis said GDP might contract by a little over 20 per cent. Economic growth had started slowing even before the pandemic struck India, falling to 3.1 per cent — a low not seen in more than 17 years — in the fourth quarter of 2019-20, even though lockdown was for only a few days in March. This pulled down GDP growth to an 11-year low of 4.2 per cent in 2019-20. This was lower than the government projection of 5 per cent in both the first and the second advance estimates. Growth had stood at 6.1 per cent in the previous year.



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