Breaking up the macro GDP numbers
While the GDP growth for the Dec-19 quarter bumped up to 4.7% from 4.5% in the Sep-19 quarter, this could largely be the base effect. Let us look at the nominal GDP and the real GDP estimates in the first place. For example, Nominal GDP for 2019-20 is estimated at Rs203.85 trillion, a growth of 7.5% over the previous year. India needs a nominal growth of well over 11% and from that perspective; the 7.5% nominal GDP growth is disappointing. Real GDP at constant prices is estimated at Rs146.84 trillion for 2019-20. That would translate into a full year GDP growth estimate of 5% for 2019-20, compared to 6.1% in the previous fiscal. However, this is an extrapolation. For the third quarter ended Dec-19, the GDP at constant prices was Rs36.65 trillion, a growth of 4.7% over the corresponding quarter last year.
GVA for full year to remain below 5%
The Gross Value Added (GVA) is a distinct concept that measures effective growth without taxes and subsidies. The GVA for the Dec-19 quarter was at 4.5% while the GVA for the fiscal 2019-20 is estimated at 4.9%. Let us look at the expected drivers of the GVA for fiscal 2019-20.
GVA for 2019-20 is estimated at 4.9% compared to 6.1% in the previous fiscal. What explains this fall? Clearly, it comes from manufacturing falling from 5.7% last year to just 0.9% this year. Even utility services like electricity, gas and water supply saw growth falling sharply from 8.2% to 4.6% in the current fiscal. The services sector including financial services and public services are expected to be at par with previous year with minor aberrations.
The big surprise is on the agriculture, mining and quarrying. Agriculture is expected to grow this fiscal at 3.7% compared to 2.4% last year. That could make a big difference to farm incomes. This sudden boost to agricultural output has been driven by a strong Rabi crop in the third quarter on the back of unseasonal rains in September. The picture becomes a lot clearer if you compare the nominal numbers of agriculture and manufacturing. For 2019-20, nominal growth in agriculture is expected at 11.3% compared to 4.5% last year. Manufacturing growth for 2019-20 is expected at 1.1%, compared to 8.6% last year.
Agriculture shines in the Dec-19 quarter too
If you look at the Dec-19 quarter numbers, it is once again agriculture that saved the blushes for the GDP numbers. In the third quarter, real growth in agriculture was 3.5% compared to 3.1% and 2.8% in the first and second quarters. This is the best agricultural growth since the first quarter of 2018-19. If you look at the nominal numbers, the contribution of agriculture becomes more prominent. Dec-19 quarter nominal growth in agriculture was 13.7% compared to 8.1% and 8.4% in the previous two quarters. This is one of the best quarters for agricultural growth in the last few years. It has largely made up for manufacturing; which has seen negative growth for 2 quarters in succession.
Question marks over the fourth quarter
The National Statistical Office (NSO) has estimated the full year GDP growth at 5%. With the first 3 quarters of 2019-20 recording GDP growth of 5%, 4.5% and 4.7%; this pre-supposes an estimated growth of 5.8% in the fourth quarter. That surely looks quite ambitious for 3 reasons. Firstly, the agricultural boost in the third quarter is unlikely to repeat in the fourth quarter. Secondly, the full impact of the Chinese Coronavirus is still not known. But, if IMF is downgrading global GDP growth by 30-40 basis points, then 5.8% in fourth quarter is surely optimistic. Thirdly, with fiscal deficit likely to be constrained at 3.8%, we could see some impact on public spending and that would impact the services growth.
A bounce from 4.5% to 4.7% in Q3 is surely positive news in the midst of all the gloomy cues. But we will really have to wait for the lag effect of the virus pandemic before getting optimistic about the weak GDP jinx getting broken.