A day after the GDP data showed a rebound in growth to 6.3% in Q2 from 5.7% in Q1, chief statistician TCA Anant says he believes the slowdown is behind us and the rebound in manufacturing is going to sustain. He says the GST data taken into account to compute GDP in Q2 could be revised upwards and also explains why there is a difference between the GDP and the GVA deflators. In an interview to FE’s Banikinkar Pattanayak, Anant says while investment shows a sign of revival, there is a long way to go. Excerpts:
Is manufacturing revival to 7% in Q2 from 1.2% in Q1 going to sustain?
It should, for two reasons. First, traditionally our manufacturing production picks up from Q2 onwards. Second, we saw a drawdown of stocks in Q1. So, in addition to the production to cater for the improved demand in the second half of the year (thanks to festivities), we will also see production taking place to re-build stocks. My reading of the corporate sector data is that the exercise of rebuilding stocks hasn’t been over yet.
Can we conclusively say now the growth slowdown has bottomed out?
I think so. The data available to us (point at an uptick); major structural adjustments have been put in place, and the negative consequences of those are behind us. So, what we expect to see is the positive benefits of those structural changes, such as GST, real estate regulator etc. So, I think, the overall long-run impact of these initiatives on growth is likely to be more positive.
The GDP deflator in Q2 dropped to 3.2% from 3.5% in Q1, while the GVA deflator went up to 2.5% in Q2 from 2.3% in the previous quarter. Why is this discrepancy?
The GVA deflator is an average of sectoral deflators. For each sector, we derive a deflator based on what that sector covers. For instance, in agriculture, we derive the sectoral deflator from crops, horticulture production, forestry and fisheries. Moving from the GVA deflator to the GDP deflator requires an additional deflator for taxes and subsidies. This deflator is not conventionally calculated on account of prices. The SNA says that we look at the total taxes that are collected on revenue on current prices, which is depicted in current prices. For taxes in constant prices, we make an estimate based on the growth in the production sectors (the GVA sectors in constant prices) and estimate the growth in taxes from that. The difference between the two is entirely attributed to price effect.
Do you think the limited fiscal space available to government to boost spending will hurt GDP growth in coming quarters, especially when private investments are hard to come by?
As such, growth in government final consumption expenditure (GFCE), a major driver of GDP in recent years, slowed to just 4.1% in Q2 from 17.2% in Q1.
Government consumption and expenditure data are partly a statistical artefact. Last year, we saw rapid growth in government consumption because, apart from other things, it had implemented the pay commission awards. So, If you ignore that natural unfavourable base, the growth in government account in Q2 is good.
Gross fixed capital formation (GFCF) has grown for a second straight quarter, although it’s still tepid. Is it an early sign of revival?
To a certain extent, the growth in the GFCF is a sign of revival, particularly the fact that capital goods production has gone up. However, there is much further to go. Ideally, we would like to see the GFCF recording higher growth than the GDP, so that its share in the GDP keeps rising. Largely, the current GFCF growth has been guided more by the government account (robust spending); private sector investments still need to revive considerably before we can see robust growth in the GFCF.
The GST filings for Q2 were still continuing when you were compiling the GDP for Q2. What sort of statistical challenges did the GST pose?
Government accounts in India are maintained on a cash basis; GDP compilation formally requires us, as far as possible, to work on an accrual basis. In a stable regime, the difference between the cash and accrual systems is very small, particularly when it comes to taxes. The reason is businesses are well conversant with their tax liabilities and will make payments on time. This time around, we were facing challenges because businesses were not fully familiar with their exact GST liabilities, the methods of payments etc. This led to a natural delay in making payments and the government also provided them some relief (in the form of deadline extension). Therefore, even at the time of the national account compilation, returns were still being processed for the second quarter. It’s on this basis we think that our estimate will possibly be revised upwards.
What is the impact of inadequate GST data on the computation of retail trade growth?
In retail trade, we were using an indicator based on the collection of sales tax, which has been subsumed by the GST. We, therefore, faced a challenge trying to replace sales tax with some estimate based on the available data. It’s possible when we get the full GST data, we may find the overall sales tax collection to have been even better.
So, is it fair to assume there will be an upward revision of Q2 growth?
We are only explaining the factors that must be kept in mind while reading the Q2 GDP data. We are not saying more than this because we don’t have hard data as yet to fully substantiate it.