1ST ESTIMATE OF GDP - NOT THE GUIDING STAR FOR FY18 BUDGET

By Ruma Dubey

The GDP data which was published by the Central Statistical Organisation (CSO) on Friday was meaningless to say the least. It has considered data for the first eight months and demonetization happened in the 11^th month. Thus the GDP number did not take into account the impact of something as massive as demonetization.

Take this fact check – 45% of the GDP calculated by the CSO comes from the informal sector, which is almost entirely run on cash and hit the hardest by demonetization.

What it did do was give us an estimate for FY17 and that GDP number was at 7.1%, down from 7.6% growth of FY16. Nothing path breaking in this data too as this is toeing the line of RBI, which last month had cut the GVA forecast of FY17 to 7.1% from earlier estimate of 7.6%.

This is also very much in line with the “cuts” announced by various rating agencies and FIIs post demonetization. Morgan Stanley cut its estimate to 7.6% from 7.8% - the most optimistic of the lot, even better than the CSO! Another ‘better than CSO’ estimate was from Credit Suisse which pegged growth at 7.4%.  Asian Development Bank was a tad lower than CSO, expecting it at 7% from its earlier prediction of 7.6%. Fitch lowered it to 6.9% from 7.4% and India ratings went down further to 6.8% from 7.8%. The most pessimistic estimate came in from Ambit Capital which culled FY17 GDP to 3.5% from 6.8%.  Ex-PM of India, Manmohan Singh has said that demonetization will shave off a straight 2% from the GDP estimate.

Thus various factions have given various estimates but all are unanimous on one thing – growth will fall. No rocket scientist required to decipher that!

But what is worrisome is that it is based on this first estimate of CSO that the Union Budget for Fy18 is going to be made and that too in the next 23 days. At this point of time, even the bets brains of India are not able to tell us the exact quantifiable impact of demonetization. Everyone knows the sectors which will suffer – realty, automobiles, consumer durables – basically all consumer facing sectors. The impact of the unorganized sector is currently not known but will be huge, the worst affected.

The Q3FY17 will soon start trickling in but not enough till the Budget on 1^st Feb for the Govt to assess the full impact. What this means is that Govt will base all its Budget decisions on these 7-8 months, pre-demonetization interpretations.

Yes, there is the big worry that the Budget, which is just three days before the assembly elections in 5 states of India take off; in all probability, with an eye on winning these elections, the Budget will be more about sops and really little about what is needed for the economy.  Usually, the first estimate of GDP is released by the CSO on 7^th Feb and it takes into consideration, the numbers till end of December. But because the Budget was advanced to 1^st Feb, CSO too had to advance its release date by a month. Thus call it politics at play here or the need to break away from all that was done for the past 60 years, the timing of this change in Budget date might end up giving us a skewed Budget.

CSO will give the second estimate on 28^th Feb , long after the Budget but will present some of the impact of the demonetization and another one on 30^th May.  Thus we know for sure that the next estimate is sure to bring forth a downward revision bit sadly, the train would have already left the station!