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Professional forecasters’ projections for March quarter gross domestic product (GDP) growth of FY21 range from a contraction of 0.4% to growth of 3.5%, signalling the mystery and difficulty involved in assessing growth in a year when the economy saw its worst recession in independent India. The Central Statistics Office (CSO) will release its GDP estimates for the March quarter and for the full year on Monday.

On one end of the curve is British multinational bank Barclays, which has projected the Indian economy to expand at 3.5% in the March quarter, holding that a low base and strong sequential gains helped propel GDP growth to a five-quarter high. “The resurgent covid-19 wave took the wind out of an economic recovery that was gathering momentum in Q4FY21 (January-March)," it added. The economy grew at 3.1% in the March quarter of FY20, partially impacted by the covid-induced lockdown imposed last year, thus providing a favourable base for March quarter of FY21.

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Sarvesh Kumar Sharma/Mint


QuantEco Research, on the other extreme, has estimated GDP to contract 0.4% in the March quarter, calling it a statistical or accounting outcome, even though it has projected gross value added (GVA) to grow at 3.2%. “The divergence in GDP vis-à-vis GVA is, however, likely to be more pronounced, with the one-time food subsidy adjustment announced in the budget getting reflected," Yuvika Singhal, economist at QuantEco Research, said.

Finance minister Nirmala Sitharaman in her FY22 budget presented in February made a significant announcement to account for all the off-budget borrowings for subsidies, mainly for Food Corporation of India (FCI), and accordingly made budget allocations for both FY21 and FY22. As a result, the government’s food subsidy bill bumped up significantly for FY21 and in the March quarter, the government would have paid a subsidy bill of 3.7 trillion out of which around 3 trillion is food subsidies, including past dues of the FCI.

Since the GDP is calculated by adding indirect taxes and deducting subsidies from GVA, a large subsidy bill could bring down overall GDP for the year, which may be the case for FY21 and FY22.

Pronab Sen, former chief statistician of India, said GVA data is a better measure of production which is of particular interest at present. “GDP data is in a big mess because in FY21, the government paid subsidies which it owed for the last three years. So, what will end up happening is net indirect tax (indirect tax-subsidies) will fall as a result the difference between GDP and GVA will be very narrow and the GDP growth rate therefore will be affected," he added.

If the impact of a low base and bloated subsidy bill was not enough to distort the GDP data for the March quarter, potential revisions of past GDP data will make any forecast near impossible.

Sen said CSO is likely to revise FY20 GDP by incorporating fresh corporate results from the ministry of corporate affairs. “When FY20 data is revised, all the quarterly estimates for FY21 also change because of the base change. For FY21, they will still be working on company filings data of Sebi (Securities and Exchange Board of India) to give an estimate of the corporate sector," Sen added.

SBI in a recent research report said though the corporate results has so far reinforced the fact that March quarter of FY21 growth would be much better than the December quarter growth, the entire projection for March quarter of FY21 is dependent on how much past data will be revised by the NSO. “Past experience on data revision indicates that apart from providing data for Q4, NSO also revises quarterly data for present/previous fiscal year and annual GDP estimate," it added. SBI projected March quarter GDP to grow 1.3% with a downward bias, while FY21 GDP is estimated to have contracted 7.3%.

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