How to predict India’s growth? Economists brace for big swings in upcoming GDP data

By: |
August 28, 2020 9:46 AM

The coronavirus pandemic has made the job of predicting India’s economic growth -- already a fraught process in normal times -- even harder.

States have been demanding compensation from the government to meet the shortfall in revenue.Economists are bracing for possible big swings in the quarterly gross domestic product data scheduled for release on Aug. 31.

The coronavirus pandemic has made the job of predicting India’s economic growth — already a fraught process in normal times — even harder. Economists are bracing for possible big swings in the quarterly gross domestic product data scheduled for release on Aug. 31 and significant revisions going forward. The statistics office suspended field surveys for several months after India went into lockdown in March, resulting in substantial data gaps.

Forecasts for GDP in the quarter through June range from a contraction of 15% to a decline of 25.9%, with a median estimate of -19.2% — representing the worst performance since India started reporting quarterly data in 1996.

Measuring last quarter’s GDP has been the “most challenging exercise in a long time,” Sumedha Das Gupta, an economist at ICICI Bank Ltd., wrote in a report on Aug. 25. “Difficulty in gauging the extent of economic disruption under lockdowns may result in a starkly different number.”

The lack of field surveys add to the data complexities, with output in several sectors likely to be estimated and later revised once the hard numbers become available in coming months.

The data gaps could “imply imputation of value-added across major sub-sectors based on limited information from high-frequency indicators and thus prone to large revisions over time,” said Gaurav Kapur, an economist with IndusInd Bank Ltd. in Mumbai.

Incomplete price-level data, which are used as deflators to arrive at real growth, would also affect GDP numbers, he said.

Even before the pandemic, India’s GDP statistics have been a source of contention. A change in the methodology to calculate GDP introduced in 2015 made forecasting difficult, prompting some economists to use their own trackers of high-frequency indicators, which compare more closely with the old GDP series. Some are now relying on proxies to estimate output in the three months to June.

Economists are already updating their forecasts based on numbers available from alternative sources, like companies and tax collection.

State Bank of India’s Soumya Kanti Ghosh revised his fiscal first-quarter GDP estimate to a 16.5% year-on-year decline, milder than the 20% contraction previously predicted, “though with the relevant caveats in the current uncertain scenario.”

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Concerns over pace of economic recovery have deepened: Report
2Centre’s fiscal deficit may skyrocket to 9% of GDP this year; these twin issues weigh on govt’s coffers
3India may soon store crude oil in US, other foreign nations; invites cos to enhance domestic capacity