Q4 GDP figures overstated? Economists raise doubts over quality of data

Madan Sabnavis, chief economist CARE Ratings, said there would be revisions for sure as all data was not available for the fourth quarter
The gross domestic product (GDP) numbers for the fourth quarter of 2019-20 shown by the recent official data, put out by the National Statistical Office, may have been overstated, according to economists.

They said substantial changes in the growth figures for the first three quarters of the year raised doubts on data quality. 

Former chief statistician Pronab Sen is of the view that GDP at current prices for the fourth quarter, shown as Rs 53.3 trillion, has been overstated by Rs 2 trillion. GDP growth is taken on the basis of constant prices. On this parameter, growth crashed to a 69-quarter low of 3.1 per cent in the fourth quarter of 2019-20. But economists doubt this figure too.

“While it is customary to change the quarterly numbers in May, the extent of such revision reveals possibly the loss in Q4 because the impact of the lockdown may have been evenly distributed across quarters,” SBI Group Chief Economic Advisor Soumya Kanti Ghosh said.

He estimated that the Rs 1.18 trillion loss was distributed over the quarters in FY20, and Q4 accounted for only 50 per cent of that.

If the Q1, Q2 and Q3 numbers are unchanged, Q4 growth comes at just 1.2 per cent, he said. 

The data released on November 29 last year showed that GDP grew 5 per cent in the first quarter and 4.5 per cent in the second quarter of FY20.

The third-quarter GDP data, which came on February 28 this year, and the second advance estimates, showed that economic growth stood at 5.6 per cent in the first quarter, 5.1 per cent in the second quarter, and 4.7 per cent in the third quarter of 2019-20.

If growth for the entire year — 5 per cent — estimated by the second advance estimates is taken into account, the growth rate for the fourth quarter was implicitly taken as 4.7 per cent.


However, the GDP data released on May 29 altered the growth rates by showing them at 5.2 per cent for the first quarter, 4.4 for the second quarter, 4.1 for the third quarter, and 3.1 for the fourth quarter. One can understand the variation for the fourth quarter because in the earlier data the growth numbers of only three quarters were available and the one for the fourth quarter was deduced from the second advance estimates for 2019-20.

However, such a significant variation for the earlier three quarters is surprising.
Madan Sabnavis, chief economist, CARE Ratings, said there would be revisions for sure as all data was not available for the fourth quarter. “There will be a downward bias for the fourth quarter (GDP numbers),” he said.

Aditi Nayar, principal economist at ICRA, said the initial data for the fourth quarter had not been able to incorporate earnings, which will reveal the impact of the lockdown on profitability. “The initial growth estimate is likely to be prove to be too optimistic,” she said. 

Motilal Oswal Institutional Research in a note said such large revisions in May were unusual because major revisions took place in January every year.

Devendra Pant, chief economist at India Ratings, said frequent data revisions were not healthy. “It raises the issue of data consistency. If I am a corporate house, I am preparing a strategy based on these numbers. That strategy will not look correct in hindsight when data is altered significantly.”

D K Srivastava, chief policy advisor at EY, said some difficulties arose because the statistics office was not able to complete all the steps it took for data collection in Q4, which had seen lockdown for a few days.
Data collection became a constrained exercise, he said, adding this particularly related to prices. 
However, he said it was difficult to say that the Q4 data was overstated because lockdown affected only a few days in March. 

The National Statistics Office (NSO) also said the data flow from economic entities had been affected because in view of the pandemic and consequent nationwide lockdown measures since March.

“As some of these units are yet to resume operations and owing to the fact that the statutory time-lines for submitting the requisite financial returns have been extended by the Government, these estimates are based on the available data. Consequently, the Estimates (Quarterly as well as Annual) are likely to undergo revision,” it said. 

However, an economist said that the data collection was affected in the fourth quarter and not the previous three quarters. 

“Why were then such sharp revisions for the first three quarters,” he wondered. 

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