Seeking to refute the commentary that economic recovery has become weaker, chief economic advisor V Anantha Nageswaran said on Thursday that high-frequency data suggests that the current year’s national income data may get revised upwards next year.
On the slower growth in the private final consumption expenditure (PFCE) in the third quarter of the current fiscal, Nageswaran said this is based on incomplete underlying data and was, therefore, not correct. He, however, acknowledged that urban economic recovery was faster than rural.
The CEA said the country’s medium-term growth potential is 6.5-7%, aided by two important positive tailwinds – repaired financial sector balance sheets and greater formalisation due to digital public infrastructure. Reports suggest the digital public infrastructure including UPI, GST, etc. may be contributing 30-50 basis points to annual GDP growth, he said.
The National Statistical Office (NSO) data released on Tuesday estimated the third quarter GDP growth in the current financial year to slow down to 4.4% from 6.3% in the second quarter and 13.2% in the first quarter. PFCE is estimated to have grown by 2.1% in Q3FY23, which Nageswaran said could have been 6% had the data of the previous year not got revised upwards.
“Given the high-frequency indicators and the pace at which they’re recovering, I do believe that later on, the current year’s data is more likely to (undergo) upward rather than downward revision,” the CEA said.
High-frequency indicators for February have so far shown a mixed picture. The S&P Global India Composite PMI Output Index eased just a tad to 55.3 in February from 55.4 in the previous month, signalling a strong improvement in the health of the manufacturing sector. The goods and services tax (GST) collection stood at `1.49 trillion in February, about 5% lower than the `1.56 trillion collected in the preceding month, but in line with the average monthly receipts trend of `1.5 trillion. Commercial vehicle sales have been a mixed bag in February.
The NSO also revised GDP growth data upward for the past three years — FY20, FY21 and FY22 while releasing the second advance estimates of GDP for FY23. However, the second advance estimate for FY23 real GDP growth has been retained at 7% as was projected in the first advance estimate in January.
Every single GDP number goes through the six estimates including first advance, second advance, preliminary first revision, second revision and third revision, the CEA said. “Given the pandemic and the noise that has affected (data), we need to actually look at the three-year change rather than looking at quarter on quarter,” he said.
To a question on likely PFCE growth of 1.5% in Q4 of FY23, the CEA said that one has to analyse keeping in mind that the previous year’s numbers were revised, and this year’s numbers are based on incomplete sampling.
Saying that interest rate in real terms isn’t particularly high at the moment, he said sometimes real interest rates need not necessarily be a cause of lower growth but simply reflect the fact that there’s a healthy underlying demand for credit.