How to interpret India’s latest GDP numbers

On February 28, the National Statistics Office (NSO) released GDP figures for the quarter ending December 2022. While analyzing GDP statistics is usually a simple exercise, the latest release included revisions to previous GDP statistics according to the NSO’s revision calendar. Because significant changes have been made to previous GDP statistics, there is some confusion as to how to read the latest figures. Here are three charts trying to answer that question.

GDP headlines show broad-based slowdown…

GDP growth in the quarter ended December 2022 was 4.4%. A comparison of the growth rates of key components of GDP shows that the economy has lost momentum across the board in the current financial year. The most alarming slowdown is evident in private consumption expenditure (PFCE), which accounted for 60% of total GDP in the December quarter of 2022.

“Weakness in private consumption stood out, slowing not only on a year-on-year basis (2.1% year-on-year versus 8.8% last quarter) but also based on our favorite metric (14.8% growth between December 2019 and 2022, compared to 15.2% growth between September 2019 and 2022),” said HSBC economists Pranjul Bhandari and Aayushi Chaudhary in a note.

While capital formation is still growing at impressive rates, it too is slowing down. Slowing exports point to weakening foreign demand for the economy. However, a disproportionate slowdown in imports has to some extent mitigated growth headwinds from exports.

See Graph 1: Main components of GDP growth from June 2022 to December 2022

…but some of the slowdown is entirely due to the data overhaul

The first reaction to the GDP figures when they were released on February 28th was that they were lower than expected. A Bloomberg poll of economists had put that figure at 4.7%. However, the argument that some of the divergence between expected and actual GDP growth numbers is because past numbers have changed has some merit. For example, if one were to calculate GDP growth based on the quarterly figures for December 2021 available before February 28th, the headline GDP growth in the December quarter of 2022 would be 5.1% instead of 4.4%. Sure, the problem lies in the way NSO publishes its data, as revised past GDP estimates force a change in the basis for growth calculations.

“If one dataset is revised to account for underlying data revisions, larger samples, etc., and the other is not, then this is not a comparable comparison,” Chief Economic Advisor V. Anantha Nageswaran said in a note distributed to journalists.

See Figure 2: December 2022 GDP growth using December 2021 GDP data before and after the 28 February revision

Despite this limitation, manufacturing remains an area of ​​concern

Gross value added (GVA) in manufacturing contracted by 1.1% in the quarter ending December 2022. This is the third contraction in manufacturing in 2022, something unprecedented in the current GDP series. While some of the manufacturing performance can be attributed to revisions to historical numbers, experts believe manufacturing remains a concern.

“Both year-on-year and sequential growth reflect a similar story of continued weakness in manufacturing activity and strong momentum in construction activity. Overall, real GVA growth in manufacturing for the first three quarters of FY23 is just 0.4% yoy versus 10% yoy for construction. This is consistent with the trend in employment data, where construction jobs are well above pre-Covid levels but manufacturing jobs momentum is more muted,” said Samiran Chakraborty, chief India economist at Citibank, in a note.

See Chart 3: Manufacturing GVA Growth

Which way for the economy now?

NSO’s assumption of 7% GDP growth in 2022-23 implies GDP growth of 5.1% in the March quarter of 2023. In its resolution of 8 February, the RBI’s Monetary Policy Committee forecast quarterly growth rates of 7.8%, 6 .2%, 6% and 5.8% in the four quarters from June 2023, implying annual GDP growth of 6.4% in 2023-24.

Private sector analysts are more sober. “We believe the overall growth momentum is slowing as pent-up demand from the lockdown period eases, exports weaken and tighter fiscal and monetary policies take their toll. We expect GDP growth to slow to 5.5% in FY24 from 6.8% in FY23,” added Bhandari and Chaudhary.

“We believe India’s growth cycle has peaked and a combination of weaker global growth and tight domestic and global financial conditions could further weigh on growth drivers. Exports, investments and free consumption. We forecast moderate GDP growth from 6.7% yoy in FY23 to 5.3% in FY24,” Nomura economists Sonal Varma and Aurodeep Nandi said in a statement.