The highlight of the December quarter GDP data is not just the GDP numbers alone, but the massive revisions of the past data

The GDP growth figure of 4.7 percent in Q3 came mostly in line with expectations. The predictions were anything between 4.3 percent to 5 percent. The number at 4.7 percent is, in fact, lower than the revised figure of 5.1 percent in the second quarter. This wasn’t a surprise because most macro indicators showed that economic slowdown spilled over to the third quarter. Without the government part of the GDP, growth is even lower.

The highlight of the December quarter GDP data is not just the GDP number alone, but the massive revisions of the past data. The extent of revisions is baffling. For the first quarter of 2018-2019, the GDP growth figure has been revised downwards to 7.1 percent from 8 percent. Similarly, in Q2, the growth has been revised to 6.2 percent from 7 percent. In Q3, the downward revision of the GDP growth is to 5.6 percent from 6.6 percent. On a lower base last year, the figures of the corresponding period in this year will show a higher growth.

In other words, without the sharp downward revision of FY19, the growth figure for the corresponding quarter this year would have looked even worse. While there is no evidence to say that there is a deliberate attempt to do this, the major revisions, as mentioned above, is baffling.

The initial estimates are like guesswork. When they get more data, final figures change. Even then these revisions are major.

In the second quarter of FY20 too, the GDP number have been revised sharply to 5.1 percent from 4.5 percent earlier. Such a sharp fluctuation in data figures raises more questions. After all, these figures are used for lot of estimates by investors and economists worldwide. While small adjustments don’t make much difference, a one percentage point change is difficult to comprehend.

Growth is weaker without govt spend

Now, take a look at the breakup of the GDP data. The growth in Q3 has been largely supported by government growth. Private sector has hardly participated in the growth story. If one were to minus the government part of the GDP, the growth comes to just 3.9 percent. Why is this figure important? Unless private participation picks up, growth isn’t sustainable. The economic growth can’t continue purely on government spending alone which is the case now.

In Q2, the government expenditure has grown by 11.8 percent while the private expenditure has grown by just 5.9 percent. The manufacturing sector, vital for job creation, continues to be on a contraction mode growing at negative 2 percent in Q3. The muted growth continued in electricity and construction as well.

The Gross Fixed capital formation (GFCF), which indicates the investment activity in the economy, contracted by 5.2 percent in Q3 as against a contraction of 4.1 percent in Q2. Overall, the loss of economic momentum has continued in the third quarter.

What lies ahead?

According to D K Joshi, chief economist of rating agency, Crisil, the government needs to unclog the financial sector mess and keep the spending spree continue to get the economy out of the slowdown mess. “Imagine a machine working without lubrication. That’s how it is now with financial sector fighting a liquidity problem,very less bank lending to industries and manufacturing sector in a poor shape,” said Joshi.

Bank credit growth has continued to decline going by the latest RBI numbers. It grew by just 6.3 per cent year-on-year in the fortnight ending February 14. At 6-7 per cent growth, bank lending is lowest in close to six decade.

The biggest problem is that the government doesn’t seem to acknowledge the extent of the slowdown and is busy portraying a rosy picture by listing ‘green shoots” in the economy where clearly there are no strong growth revival indicators at this point.

The economy at a seven-year low of 4.7 percent in Q3 is in ICU and the Narendra Modi-government must admit the state of the economy and work on a stimulus plan. That's the first step to resolve the problem.

(Data support by Kishor Kadam)