Q3 GDP numbers: Taking a look at some high-frequency indicators

The govt contends that Q3 GDP will be revised upwards. Many experts believe rural economic growth is still slow. Data shows both could be right

After the October-December 2022 (Q3FY23) gross domestic product (GDP) came in below market expectations last week, Chief Economic Advisor V Anantha Nageswaran said that the figures came across as tepid only due to revisions made in earlier years, and had to be analysed in that context.

Interacting with reporters in multiple days following the release of the official data, Nageswaran said, “Given the high-frequency data that we have been seeing, and their pace of recovery, it is likely that data for the current year’s third quarter will undergo upward revision,” and added that the latest data is based on incomplete print, especially since quarterly data in India is not seasonally adjusted.

India’s economy grew at a weaker-than-expected 4.4 per cent in Q3 amid wide revisions to earlier GDP figures, as manufacturing output contracted for the second consecutive quarter and consumer demand slowed.

A survey of 41 professional forecasters by the Reserve Bank of India (RBI) earlier this month pegged median GDP growth at 4.6 per cent for Q3. However, the RBI projected December-quarter GDP growth at 4.4 per cent.

Business Standard takes a look at some of the high-frequency indicators that the Finance Ministry and private economists track, to get a sense of how the economy has been performing in Q3FY23, and to ascertain whether there is a divergence between GDP data and the said indicators.

Goods and Service Tax

The biggest indicator of improved economic activity since the pandemic has been the increase in GST monthly collection, which has been above the Rs 1.4 trillion mark each month in the current financial year (FY23). The same held true for the Q3, and GST in the months of October, November and December registered a growth of 16.6 per cent, 11 per cent and 15 per cent respectively. Not all of this was because of an increase in economic activity though, with better compliance and assessment also playing a part.

Vehicle sales

There is one data set here that is urban-focused (car sales), and two which are indicative of rural consumption (two-wheelers and tractors). Many analysts have argued that the current consumer demand is skewed towards goods and services consumed largely by households falling in the upper-income bracket. What is interesting is that for October and November 2022, two-wheeler sales have not expanded year-on-year as much when compared with motorcar sales. These two months were supposed to be the big festive period following two years of Covid-induced restrictions. Hence it is possible that pent-up demand has dissipated in rural areas.

 

Airlines

Another high-frequency indicator is biased towards the urban population and those with higher disposable incomes. This data captures the extent of pent-up demand in the aviation, travel, and tourism sectors, as restrictions lifted. The month of October 2022 is particularly illustrative of the demand in the aviation sector. People travelled in spite of skyrocketing airfares and longer-than-usual check-in times at airports.

 

Railways

This is another indicator that showed strong recovery in economic activity once the Covid-restrictions were largely lifted. The year-on-year rise in passenger data was quite staggering, particularly for the festive month of October. In revenue terms, freight earnings also showed a decent growth.

Electricity Consumption

The cold months of November and December saw a bigger year-on-year jump in peak electricity demand. Overall, the improvement in peak demand in all three months indicates that more businesses, whether MSME or large industries, whether manufacturing or service establishments, were utilizing their capacities. A clear indicator of the improvement in economic activity from the pandemic-affected 2021.

 

Rural Economy
 

The two data points perhaps best support the argument of many economists, that consumption is being driven by the urban economy. Demand for NREGA came down in Q3FY23 from the same period last year, especially in October. However, demand from households again increased in November and December. Of particular concern is the fact that NREGA work demand for these three months in FY23 was still above the pre-pandemic period of October-December FY2019-20.

If one looks at rural wages, it is clear that adjusted for inflation, wages have hardly risen in October and November, from the comparable months last year. Data for December is not yet available.


 

Conclusion

India’s household consumption showed a slight deceleration in the October-December FY23 quarter as a contributor to gross domestic product, compared to the same period last year, indicating that the post-pandemic pent-up demand may have finally run its course and that growth continues to be uneven.

The high-frequency indicators examined here so far do support CEA Nageswaran’s contention that economic activity has been robust, and there could be an upward bias when the Q3FY23 GDP print is revised by the National Statistical Office (NSO). By the second or third revision, the complete state of the economy is usually captured.

However, the trends in rural indicators, like NREGA, two-wheeler sales, and rural wages, also support the argument of those who say that consumption is mostly driven by urban and semi-urban regions of the country and that the rural economy is not recovering fast enough.