The second advance estimates of GDP for the existing year, along with the third quarter estimates, released by the Ministry of Statistics and Programme Implementation (Mospi) do not come as a surprise. The estimates of 1% GVA and .4% development in GDP mark the finish of the recessionary phase.
As anticipated, agriculture continues to carry out effectively. In truth, all the sectors except (i) mining and quarrying, (ii) trade, hotels, transport and communication services and (iii) public administration, defence and other services have recorded positive development in the third quarter even in other sectors, the contraction is reduced by varying magnitudes. And market as a complete as well has moved into the positive territory. Services, which face larger restrictions due to social distancing norms, continued to shrink, but by just 1%. Significant improvement is observed in the overall performance of building, up from -7.2% in Q2 to 6.2% in Q3, and economic and genuine estate sector (up from -9.5% in Q2 to 6.6% in Q3). The contraction in trade, hotels and transport continues to be higher at -7.7% in Q3, although this is a important improvement from -15.3% in Q2.
Public administration, defence and other services performed far better than the -9.3% development recorded in Q2, but continued to contract at -1.5% in Q3. It was hoped that enhance in the Centre’s spending following October would take it to positive development. However, the state governments, which contribute to more than 70% of public consumption spending, look to continue their austerity provided the income constraints. Sectors like education and healthcare as well have not recovered to the pre-Covid levels. The enhanced GST collections of more than Rs 1 lakh crore and the record collection of Rs 1.2 lakh crore in January also indicated recovery.
However, enhanced collections look to as substantially due to an enhance in consumption as due to far better enforcement. With the technologies platform stabilising, the government could use the information to undertake invoice matching to detect taking false input tax credit by way of fake invoicing. With organizations obtaining turnovers of more than Rs one hundred crore expected to situation e-invoicing from January 2021, each enforcement and compliance of the tax are most likely to show additional improvement in the coming months.
It is, even so, as well early to celebrate the news of the economy getting into the positive development phase. It is accurate that there has been a steady recovery of pretty much all the sectors, as indicated by the major indicators. In truth, the median industry expectation for the third quarter was a development of .6%. While it is futile to quibble more than a couple of decimal points, it is important to note that one purpose for the reduced than the anticipated development is the important downward revision in the third quarter development of FY20. The GDP development in the third quarter of FY20 was revised from 4.1% to 3.3%. There had been massive revisions in the development of GVA for many sectors.
If the complete year contraction of 8% as against the earlier estimate of 7.7% holds accurate, then the fourth-quarter estimate of GDP will be adverse 1.1%, although the GVA will continue to be positive at 2.5%. The downward revision of GDP in the very first quarter from 23.9% to 24.4%, even although there was a marginal upward revision in the second quarter, reduces the general development price for the year as effectively as for the fourth quarter.
Besides, as the GDP at continuous costs is now estimated at industry costs rather than element expense, indirect taxes and subsidies also pull down the GDP estimate for the year as effectively as for the fourth quarter. It should be noted that the revised estimate of subsidies for FY21 is at Rs 5.9 lakh crore as against the spending budget estimate of Rs 2.5 lakh crore. This appears to be primarily due to the clearing of the off-spending budget liabilities on meals subsidies arising from FCI borrowing from the NSSF.
While it is a favourite pastime of economists to quibble on the development prices on a couple of decimal point variations from what they had anticipated, it is vital to note for the existing year, all these estimates are most likely to undergo substantial revisions. The revision in the very first quarter estimate from 23.9% to 24.4% is not surprising. Even in typical years, important revisions are created, as was observed in the case of Q3 in FY20, and in this abnormal year, as more facts on the urban informal sectors develop into accessible, there would be additional revisions. In the meantime, we will continue to characterise development in terms of alphabets we choose—“V”, “K”, or “W”.
The sector-sensible estimate for the fourth quarter, deciphered from the estimates for the 3 quarters and the second advance estimate for the complete year, does not make substantially sense. Agriculture and allied sectors are estimated to develop just at about 1.9% in Q4, it has currently registered an typical development of 3.4% in the 3 quarters, and the complete year development of the sector is pegged at 3%! The mining sector is estimated to contract by 9.2% through the year and obtaining progressively decreased the contraction from 18% in Q1 to 5.3% in Q3, it is estimated to contract by 16.3% in the fourth quarter!
In contrast, the building sector is estimated to show a adverse development of 10.3% through the year, and that would demand it to register a positive development of 12.5% in Q4. Even a sector like trade, hotels, transport and communication is estimated to register positive development in Q4 at 1.8%. For the optimists, the excellent news is that in Q4, each agriculture, market and services will see positive development. It is challenging to make substantially sense of these estimates, but let us preserve our fingers crossed.
Perhaps we must wait for the provisional estimates of GDP, which are supposed to be released in May, to get a far better sense of the recovery.
Councillor, Takshashila Institution and chief financial adviser, Brickwork Ratings. Views are private