The National Statistical Office (NSO) released the Second Advance Estimates (SAE) of 2023-24 (the year is still not over) on 29 February. The First Advance Estimates (FAE) GDP numbers for the year were released on 5 January.
The big news flash was the scintillating real GDP growth of 8.4 percent in the third quarter (Q3: October-December). This heartwarming performance also pushed the real GDP 2023-24 growth to a high of 7.6 percent in SAE from 7.3 percent in FAE.
There was stranger movement in the nominal GDP growth number though.
The NSO revised the nominal GDP growth for 2023-24 upward from 8.9 percent in FAE to 9.1 percent in SAE (by plus 0.2 percent). However, the absolute nominal GDP was revised downward from Rs 296.58 trillion to Rs 293.90 trillion (by minus 0.9 percent).
The nominal GDP is important as the GDP in US dollars is arrived at by dividing the former by the rupee-dollar exchange rate. India dreams of 5 trillion is also expressed in dollars.
What is going on? What is the real message of second-advance GDP numbers? Do the curious numbers of SAE 2023-24 tell a different story?
What Do Flashy Q3 Numbers Tell About the Fourth Quarter
The sizzling 2023-24 Q3 growth of 8.4 percent follows on similarly excellent first and second quarter GDP growth of 8.2 percent and 8.1 percent respectively. For the nine months (April-December) 2023-24, India’s real GDP at Rs. 126.48 trillion has recorded a scintillating 8.2 percent growth.
For the year 2023-24 as a whole, however, NSO has projected the real GDP at Rs. 172.90 trillion and GDP growth at 7.6 percent in the SAE.
This implies that the NSO expects the fourth quarter GDP to come at Rs. 46.42 trillion (Rs. 172.90 trillion minus 126.48 trillion). For the fourth quarter of 2022-23, GDP was Rs. 43.83 trillion (Rs. 160.71 trillion minus 9-month GDP of Rs. 116.88 trillion).
The NSO, therefore, estimates the fourth quarter GDP to increase by only Rs. 2.59 trillion (Rs. 46.42 trillion minus 43.83 trillion), which yields a growth of only 5.9 percent.
Why is the NSO pessimistic about the fourth quarter growth at only 5.9 percent against the growth of 8.2, 8.1, and 8.4 percent in the first three quarters?
The fourth quarter 2023-24 growth numbers would be released on 31 May 2024. Lok Sabha election results will be out by then. The new government would have also most likely assumed office.
Is there an attempt to put a glistening polish on the third-quarter GDP numbers?
GDP Up, GVA Unchanged
GDP is the measure from the demand side. The supply side (production of goods and services in the economy) is measured by gross value added (GVA).
For the third quarter of 2023-24, GDP growth was up 8.4 percent. The GVA growth, however, was only 6.5 percent. Such a large difference in GDP and GVA growth!
For the year 2023-24 as a whole, GDP growth went up from 7.3 percent in the FAE to 7.6 percent in the SAE. However, the GVA growth remained unchanged at 6.9 percent.
GDP growth went up, but no such movement in GVA!
What drove the GDP up but did not get reflected in GVA, the real growth core of GDP?
In national accounts, the GDP is the total of GVA plus net product taxes. Net product taxes are indirect taxes collected like GST minus product subsidies like fertiliser subsidy provided by the government.
The NSO has projected healthy growth in indirect taxes and lowered the projected subsidies outgo. The net product taxes component consequently has recorded growth of as high as 15.5 percent. This pushed the GDP growth to 7.6 percent but not the GVA growth, which remained at 6.9 percent.
The net tax growth does not benefit the economy & people unless it leads to lesser borrowing by the government. The government has not signaled any reduction in the fiscal deficit for 2023-24 so far.
Nominal GDP Growth Up; Absolute Nominal GDP Down
The nominal GDP for the year 2023-24 was estimated at Rs 296.58 trillion in the FAE. The nominal GDP for 2022-23 was Rs 272.41 trillion (provisional estimates). The estimated annual growth for the year 2023-24 was 8.9 percent.
The nominal GDP for 2023-24 has been revised down to Rs 293.90 trillion in the SAE. At the same time, nominal GDP for 2022-23 has also been revised down to Rs 269.50 trillion. This increased nominal GDP growth to 9.1 percent.
In terms of absolute growth, the nominal GDP for 2023-24 has been revised down by Rs 2.68 trillion (Rs 296.58 trillion minus Rs 293.90 trillion). The nominal GDP for 2022-23 has been revised by Rs 2.91 trillion (Rs 272.41 trillion minus Rs 269.50 trillion).
As there is a larger reduction in nominal GDP for 2022-23 than in the nominal GDP of 2023-24, the nominal GDP growth has gone up (from 8.9 percent to 9.1 percent) despite the absolute nominal GDP going down by Rs 2.68 trillion.
Dollar GDP and Growth Is Down As Well
At 83 to a dollar, the rupee GDP of Rs 296.58 trillion for the year 2023-24 in the FAE, translated to USD 3.57 trillion. At the same exchange rate, the rupee GDP of Rs 293.90 in the SAE translates to USD 3.54 trillion.
The dollar GDP has fallen by as much as 0.03 trillion between the first and the second advance estimates – in a span of less than two months!
USD 5 Trillion GDP Goal Recedes in the Background
The government, after it had assumed power in 2019 for the second term, had declared USD 5 trillion GDP by 2024-25 as its goal in July 2019.
India’s dollar GDP was USD 2.8 trillion in 2018-19, the year before when the goal of USD 5 trillion was announced. It was to cover the distance of USD 2.2 trillion in six years.
In five years of its second term, the Modi government could travel from USD 2.8 trillion to USD 3.54 trillion only. It is a grand distance of USD 0.74 trillion; less than one-third of the distance. India is still USD 1.46 trillion away from the USD 5 trillion goal.
India will need to generate a dollar GDP growth of 41 percent in 2024-25 to reach USD 5 trillion goal. It is an impossible task.
No wonder the government has stopped talking about the USD 5 trillion GDP goal. There is talk of USD 7 trillion in GDP by 2030 or USD 35 trillion by 2047.
(The author is economic and fiscal policy advisor, SUBHANJALI, former Finance & Economic Affairs Secretary, and author of 'The $10 Trillion Dream'. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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