Advance estimates of national income for 2015-16 were released on Monday, and they will cause both a certain degree of comfort and concern to observers of the Indian economy. The Central Statistics Office has said that gross domestic product (GDP) will grow at 7.6 per cent in real terms - in other words, at constant prices - for the whole financial year, 2015-16. This represents an acceleration over 2014-15, in which the economy grew at 7.2 per cent. Certainly, it appears that a recovery is underway - especially as both of these years were drought-hit. However, when the figures for the third quarter in the current financial year are examined, some concerns begin to creep in. Growth at constant prices for the first quarter of 2015-16 was revised upwards at 7.6 per cent year-on-year (y-o-y); for the second quarter, it was scaled up at 7.7 per cent. However, the third quarter clocked in at 7.3 per cent y-o-y, which suggests a slight within-year deceleration. A significant acceleration will thus have to be seen in the final quarter, currently underway, in order to meet the whole-year estimate of 7.6 per cent. A back-of-the-envelope calculation suggests that 7.8 per cent growth in the fourth quarter will be needed.
There have been some questions asked of late about the methods by which the GDP figures are calculated. Sadly, the new release will not answer them to everyone's satisfaction. For one, the deflator - the method used to move from estimates at current prices to those at constant 2011-12 prices - has puzzlingly changed between quarters. In the second quarter this year, GDP at constant prices grew by 1.3 percentage points more than GDP at current prices; in the third quarter, it grew 1.9 percentage points less. This 3.2 percentage point swing in the calculation will give rise to more questions, not less. The gap between GDP and gross value added has also climbed since 2014-15 - this might be explained by taxes and a lower subsidy outgo, caused by a reduction in international fuel prices.
When looking at the sectoral break up, certain indicators stand out. For one, agriculture has had another bad year, with the Central Statistics Organisation (CSO) estimating it will grow at only 1.1 per cent in 2015-16. Note that in 2014-15, agriculture actually shrank by 0.2 per cent, so it has done better this year - but, still, the drought has made a discernible difference. Within agriculture, there has been decent growth only in forests, fisheries and livestock - which supports the argument that the apparent "drought-proofing" of agriculture comes essentially from these, more modern, areas of the rural economy. Then there is manufacturing, which the CSO says will clock an enviable 9.5 per cent growth at constant prices over the full year of 2015-16. This follows third-quarter growth of 12.6 per cent. If this is the case, then it is difficult to see why the relevant private sector companies are unhappy with their growth - especially since the private corporate sector's growth is to come in at 9.9 per cent over the year, according to the CSO. Judging by the numbers, a manufacturing revival is well and truly on. What should give pause, however, is the real concern that investment is not doing its fair share - gross fixed capital formation in 2015-16 is to be 29.4 per cent of GDP, lower than the 30.8 per cent in 2014-15. This does not bode well for the sustainability of the recovery.
