No green shoots of a revival in sight as yet (The Hindu)

Mains Paper 3:Economy
Prelims level:National Statistical Office
Mains level: Methodology of GDP growth estimates

Context:

• On February 28, as per its release calendar, the National Statistical Office (NSO) put out the third quarter gross domestic product (GDP) estimates, that is, for October-December 2019.
• It showed that domestic output grew at..............................................

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Reveal the data:

• A closer reading reveals that the latest data release has revised the estimates of the first two quarters of the current year (2019-2020) upwards to 5.6% and 5.1%, from the earlier figures of 5% and 4.5%, respectively.
• The upward revisions have, perhaps unwittingly, changed the interpretation of the current year’s Q3 estimate: the slowdown has continued, not bottomed out; hence, there is no economic revival in sight as of now.
• Thus, we have competing views of what the third quarter performance really means for the economy, giving rise to the suspicion of the integrity of the latest revision.

Why did the current year’s Q1 and Q2 GDP estimates get revised upwards?

• This was simply because the corresponding figures for the previous year (2018-2019) got revised downwards.
• Many viewed the revision of last year’s estimates as evidence of lack of credibility of the NSO’s revision process.
• Such doubts are well taken, given the long-standing debate and unresolved disputes on the veracity of GDP figures put out since 2015, when the statistical office released the new series of National Accounts with 2011-2012 as base year.

Constant revisions:

• GDP is a statistical construct — unlike the temperature on a thermometer — prepared using many bits of quantitative information on an economy’s production, consumption and incomes.
• Many statistical models and ............................................

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More based on projections

• Since 1999, quarterly GDP estimates are being prepared, as per the International Monetary Fund (IMF)’s data dissemination standards.
• Their quality is subpar as the primary data needed quarterly are mostly lacking. For example, nearly one-half of India’s GDP originates in the unorganised sector (including agriculture), whose output is not easily amenable to direct estimation every quarter, given the informal nature of production and employment.
• Hence, the estimates are obtained as ratios, proportions and projections of the annual GDP estimates.

National Accounts Statistics:

• The National Accounts Statistics (NAS)-Sources and Methods 2012, the official guide for national accounts estimation, states it as follows: “The production approach is used for compiling the QGDP estimates, in terms of gross value added (GVA) and is broadly based on the benchmark-indicator method.
• In this method, for each of the industry-groups... a key indicator or a set of key indicators for which data in volume or quantity terms is available on a quarterly basis are used to extrapolate the value of output/value-added estimates of the previous year.
• In general terms, quarterly estimates of GDP are extrapolations of annual series of GDP.
• The estimates of GVA by industry are compiled by extrapolating value of output or value-added with relevant indicators.”

What can we make of the disagreements over the quarterly GDP growth estimates for 2019-2020?

• The revisions were probably in line with the latest changes in the annual estimates (second advance estimates).
• The press release stated that, Quarterly estimates of the previous years along with the first and second quarterly estimates of 2019-20 released earlier have undergone revision in accordance with the revision policy of National Accounts.
• There were considerable variations at the sectoral estimates after the revision, which probably contained more noise than information.
• For now, there is little ground to question the revised estimates based on the publicly available information.

Undeniable decline:

• However, if we accept the latest data, it is clear, though in an alarming way, that there has been an undeniable decline in the GDP growth rate over seven consecutive quarters, from 7.1% in Q1 of 2018-2019 to 4.7% in Q3 of 2019-2020.
• Considering that ...................................

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Way forward:

• India’s quarterly GDP estimates have limited primary information in them. Their revisions are largely extrapolations and projections of the annual figures.
• Hence, one should be cautious in reading too much into the specific numbers.
• They are helpful to discern the broad trends in economic activity, which appear grave at the moment.
• Economic growth continues to drift downwards, from a peak of 7.1% in the first quarter of 2018-19 to 4.7% in the third quarter of the current year.
• It probably suggests more pain ahead, as the green shoots of economic revival seem nowhere in sight.

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  General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1)With reference to the virtual currency, consider the following statements:
1. The Supreme Court has set aside a ban by the Reserve Bank of India (RBI) on banks and financial institutions from dealing with virtual currency holders and exchanges.
2. The test of proportionality of any action by the government must pass the test of Article 19(1)(g), which states that all citizens of the country will have the right to practise any profession, or carry on any occupation or trade and business.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: ...........................................

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Mains Questions:
Q.1) Why did the current year’s Q1 and Q2 GDP estimates get revised upwards? What can we make of the disagreements over the quarterly GDP growth estimates for 2019-2020?