According to India Ratings, GDP advance estimates could be lowered to 8.6%.

  • Feb. 24, 2022, 11:20 a.m.

The National Statistical Office’s (NSO’s) second advance estimates for FY22, due on February 28, may peg the current fiscal year’s real gross domestic product (real GDP) growth at 8.6 percent, compared with the 9.2 percent projected in the first advance estimates, India Ratings said on Wednesday.

The reason for this likely downward revision, according to the ratings agency, is the recent upward revision in the FY21 GDP contraction, to negative 6.6 percent to negative 7.3 percent.

"India Ratings’ estimate suggests that the second advance estimates may peg the FY22 real GDP growth at Rs 147.2 trillion.

This would translate into a GDP growth rate of 8.6 percent YoY for FY22 compared to the 9.2 percent forecast on January 7. The major reason for the likely downward revision in GDP growth is the upward revision of FY21 GDP to Rs 135.6 trillion in the first revised estimate of national income," the agency said.

According to the revised estimates, the GDP growth in FY20 now stands at 3.7 percent, compared to 4 percent earlier.

Furthermore, the GDP growth rate for FY19 remains the same at 6.5 per cent 

The growth rates of GDP drivers from the demand side — namely, private final consumption expenditure (PFCE), government final consumption expenditure (GFCE) and gross fixed capital formation (GFCF) — have undergone a change.

"Due to these revisions, quarterly GDP growth numbers are also expected to undergo a change. As the FY20 GDP growth has been revised downwards, we now expect GDP growth in all four quarters of FY20 to be lower than the present estimates. "This would mean a likely upward revision of FY21 and a downward revision of FY22 quarterly GDP numbers," India Ratings said.

The agency’s estimate shows that GDP growth in Q1 and Q2 of FY22 may decline by 90-110 basis points, as estimated earlier.

And, the figures in Q3 and Q4 of FY22 may come in at 5.6 percent and 5.1 percent, respectively. This is down from 6 percent and 5.7 percent estimated earlier.

"All this may appear quite confusing, but estimation of GDP is a fairly elaborate and time-consuming exercise. The agency said it takes about three years to finalise the GDP data.

The direction of revisions suggests that, generally, during the years of stable/upswing in GDP growth, the advance estimate tends to underestimate the actual GDP growth rate. It does just the opposite during the years of the downswing.

This apparently happens because the first advance estimate of a particular fiscal year is based on the extrapolation of the select dataset of the previous year’s provisional estimates, the ratings agency said.

"However, we believe that the period considered is too short for arriving at a firm conclusion. This aspect needs to be studied for a much longer period, preferably 30 years. Also, growth revisions for the pandemic year such as FY21 should be viewed carefully and the exogenous shock, which the economy has faced, cannot be modelled/factored in any estimation process," it said.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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