Home / Economy / Advance estimates for GDP augur growth recovery

Four numbers stand out about the Advance Estimate of GDP for 2021-22 released late on 7 January. One is 9.2, the percentage growth of gross domestic product at constant prices. The other is 8.4%, the rate of rise in economywide prices. The third is 29.6, the share of fixed capital formation in the year’s output. And the fourth is 3%, the gap between the shares of exports and imports in GDP.

The forecast by the National Statistics Office is a tad lower than the RBI’s growth projection of 9.5%. In any case, the upshot is that total economic output in the current year would be a tad, that is, 1.2%, higher than in 2019-20, given that the economy had declined by 7.3% in the pandemic-crippled 2020-21. India joins the ranks of the world’s economies that have recovered at least to their pre-pandemic level of output.

The nominal rate of growth in 2021-22 is estimated to be 17.6%. The difference between the rates of nominal and real growth rates gives what economists call the GDP deflator, the economywide change in prices. That is broader than the Consumer Price Index the Monetary Policy Committee obsesses about or the Wholesale Price Index that many consider a proxy for producer prices. Blame the steep rise of 19% of net taxes on products for a good part of the steep rise in prices.

The third figure of note is the share of gross fixed capital formation in GDP. At 29.6%, this is the highest it has been for quite some time. Investment drives growth. The investment rate in India had touched 36% in 2007-08, and had dipped significantly below 30% from 2014-15 onwards, hovering around 27% of GDP. It would seem to be clawing its way back to the 30% level. That augurs well for economic growth.

Exports are 20.1% GDP. And imports are 23.1% of GDP. This signals a robust pick-up in trade. The ongoing global recovery in economic growth — that is one reason why oil prices went up, apart from output curbs by the oil cartel Opec and Russia — should help India sustain the export momentum. It is welcome that imports are growing as well, particularly as data separately available suggests that capital goods imports have been growing at double digits. This shows that economic activity has vigour.

The gap between exports of goods and services and the total imports of goods and services, the current account deficit, represents the economy’s absorption of investment in excess of domestic savings. In other words, the Advance Estimate says that India is absorbing global savings to the extent of 3% of GDP. This is a healthy trend, so long as India’s ability to service the import of capital required to finance that current account deficit is not in doubt. A current account deficit of 3% of GDP is eminently sustainable.

The Advance Estimates for 2021-22 offer grounds for optimism.


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