Clear recovery underway but much better GVA & Q4 growth crucial for any sharp upturn: Rangarajan

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February 27, 2021 8:01 PM

Agreeing that there undoubtedly is an economic recovery underway, Dr C Rangarajan, economist and the former governor of the RBI prefers to still stay cautious.

India, Indian economy, GDP, GDP numbers, latest GDP numbers v-shaped recovery, Dr C Rangarajan, RBI, reserve bank of IndiaRecent estimates of GDP for Q3 may have had a sobering effect on the way we view numbers but the ‘0.4%’ growth has already produced a gleam in the eyes of policymakers. (File photo)

Positive growth in GDP after two successive quarters of negative GDP growth has ensured the Indian economy appears to emerge out of a recession, at least technically. But then, it may still be too early to celebrate as a lot still depends on the cross-sectoral performance and on the likely GDP growth in the fourth quarter.

The recent estimates of the GDP (Gross Domestic Product) for the third quarter between October and December 2020-21 may have had a sobering effect on the way we view numbers but the “0.4 percent” growth has already produced a gleam in the eyes of the economic policymakers who are now confident that India – the fourth-largest economy on the planet (after the US, China, Japan, and Germany) is clearly riding out of recession and exhibiting what they like to describe as a “V-shaped recovery”.

Agreeing that there undoubtedly is an economic recovery underway, Dr C Rangarajan, economist and the former governor of the Reserve Bank of India (RBI) prefers to still stay cautious. His concerns are broadly on two folds. One is to do with the expectations now for the fourth quarter GDP numbers. “As the numbers shared so far suggest, one may have to expect modest GDP growth number for the fourth quarter and not a spectacular increase given that the year as a whole is expected to conclude with a minus 8 percent growth. The growth in the next quarter is therefore likely to be similar to the third quarter,” he says.

The other concern is around what appears a rather strange divergence between the GDP and the GVA (Gross Value Added) numbers. GVA is a measure of output and is arrived at when the GDP number is adjusted for the impact of indirect taxes and subsidies. “I am still looking for a clear explanation on why the GDP is growing at a small positive and the GVA is at a negative 6.5 percent. The only explanation, at the moment, based on how these terms are defined, is that the indirect taxes and subsidies have had a crucial role in shaping such a divergence. We need to look at these numbers more closely,” he says.

After all, he feels, if one were to look purely at the GVA number, crucial in any study of the sectoral performance, it could be argued that we still have some distance to cover before we can comfortably say that we have indeed come out of recession. A much better number, which is in positive territory and also a sharper growth in the fourth quarter is crucial if there is to be a sharp upturn in the economic growth. Putting together the modest recovery in the third quarter and a likely repeat in the fourth quarter, he feels, it is not seeming like a sharp “V-shaped recovery” because from a decline there is a move up the recovery path but still creeping ahead and not seeming to be sharply rising, at least at the moment.

 

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