The gross domestic product (GDP) growth estimates for 2016-17, that will factor in the rebased index of industrial production (IIP) and wholesale price index (WPI) data, will be released after market hours today. Earlier this month, new sets of IIP and WPI data, with the base year changed to 2011-12 from the earlier 2004-05, were released. New categories of goods were added and weightages were also changed to bring the two indices more in tune with current consumption trends. These changes are expected to have an impact on the GDP growth estimates that the government will release today at 5.30 pm.
Here’s are the top points to look out for in today’s GDP numbers:
GVA vs GDP
The estimates of gross value added (GVA) will be closely watched as GVA serves as a more realistic proxy to measure changes in the aggregate value of goods and services produced in an economy.
In the second advance estimates released in February, the government had estimated that growth in GVA, which is GDP minus net taxes, will slow down to 6.7 percent in 2016-17 or 1.1 percentage points lower than 7.8 percent GVA growth in 2015-16. A slower than expected growth estimate for GVA could suggest that the deceleration is a sharper than what the headline GDP growth numbers suggest. The demonetization effect and the resultant slowdown in household spending and corporate investment may well be evident in the steeper fall in GVA growth estimates compared to the fall in GDP growth estimates. Also, higher indirect tax collections in 2016-17 may also partly explain the higher growth forecasts for GDP compared to those for the GVA.
GDP numbers for the fiscal 2015-16 and 2016-17 are expected to be revised to 8.3 per cent and 7.6 per cent, respectively, because of new IIP and GDP series, said PTI citing a SBI research report.
According to the report, the GDP numbers scheduled to be released today are expected to be a “pleasant affair” and the new IIP and WPI series will impact all GDP numbers from 2013-14.
“We expect 2013-14 GDP growth to be revised from 6.5 per cent to 7.3 per cent, while 2015-16 GDP is expected to be revised from 7.9 per cent to 8.3 per cent because of new IIP and GDP series. 2016-17 GDP growth is expected to be revised from 7.1 per cent to 7.6 per cent,” the report said.
The report further said that the level of remonetization has reached 80 per cent of the total extinguished currency in circulation as on 19 May 2017, and strong GDP numbers, coupled with abundant liquidity and very soft inflation numbers going forward, will make the monetary management job of RBI relatively difficult.
“We also estimate that nearly 65 percent of incremental deposits of Rs 7 lakh crores that came into the system between November 8, 2016 and May 12, 2017, is still sloshing around,” the report said.
Growth on New IIP
Under the new GDP calculation methodology, the industrial activity reflected by the IIP makes up only 25 percent of all output versus making up 100 percent under the old methodology. Also, earlier the data used to get updated two years later based on inputs from the Annual Survey of Industries (ASI). This method had limitations, as ASI only captures goods’ value of firms registered under the Factories Act and that too only at the time of the goods leaving the factory gate.
Given the rebased IIP, a significant upward revision in the quarterly GDP growth rates is expected. Investors will be keenly watching the changes in the growth estimates for the fourth quarter FY17 from the 6.8 percent projected in February and also the upward revision in all the preceding three quarters from 7.2 percent, 7.4 percent and 7 percent in the first, second and third quarters respectively in 2016-17.