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FY20 GDP growth may fall further due to incomplete data: Report
New Delhi, May 30 - Availability of incomplete data sets may push further downward revision in Gross Domestic Product (GDP) growth numbers for the fourth quarter and financial year 2019-20 in August when the central statistics office (CSO) releases the first quarter numbers and updates previous quarterly numbers, according to a SBI Ecowrap report.
The report authored by State Bank of India (SBI) Group Chief Economic Adviser, Soumya Kanti Ghosh has questioned the data quality and remarkable' volatility in the new series adopted by CSO that has led to frequent sharp revisions in GDP numbers in each of quarterly estimates with wide upward and downward swings in numbers in each of the quarter estimate from excisions.
The CSO released GDP numbers on Friday that has put the Q4 growth to 11 year low level of 3.1 per cent while FY20 GDP growth level has fallen to 4.2 per cent compared to 6.1% in FY19. What is interesting, that CSO also steeply r evised downwards the GDP numbers for previous quarters which just three mont hs back in February underwent significant upward revisions.
"While it is customary to change the Quarterly Numbers in May when t he 3rd estimate of FY20 is released, the extent of such revision reveals pos sibly the loss in Q4 because of lockdown may have been evenly distributed ac ross quarters/Rs 1.18 lakh crore loss estimated and distributed across quart ers in FY20 (Q4 accounted for only 50% of such)," the SBI Ecowrap re port said.
"On an unchanged Q1, Q2 and Q3 numbers, the Q4 growth comes at 1.2%, " the report added.
As per our calculation done by SBI only 18% of GVA is exempted from the lock down and CSO may release data for that segment only for a large part of Q1FY 21 and "hence we cannot rule out data issues even for Q1."
"We would like CSO to come out with a methodological note explaining the reasons of why the data has become so volatile in last 2-3 years? Is it because the economy is undergoing a structural change that CSO is not able t o capture? These are questions that CSO can only provide an answer," Ghosh has said in his report raising questions whether data is being select ively used to arrive at desired numbers.
To justify its claims, the SBI Ecowrap said that in terms of sectors, the on ly silver lining was agriculture in the latest GDP numbers. Agriculture and Allied Activities grew at 4.0% in FY20, compared to last year growth of 2.4%. In Q4, the sector registered a healthy growth of 5.9% as against 1.6% growth in Q4 FY19.
"However, CSO has significantly revised the previous quarters' growth rates (compared to Q3 release) which is quite puzzling and raises qu estions about data quality and remarkable volatility in the new series and w e believe that a methodological note from CSO explaining the frequent revisions will be very useful," the report said.
Apart from the data issues, it is worth noting that Government has extended s tatutory timelines for submitting the requisite financial returns and the latest CSO GDP estimates are thus based on the whatever data is available. So, the chances of significant revisions in both Quarterly as well as Annual nu mbers in August when the Q1FY21 data is released becomes more real.
On the demand side, the decline in private final consumption expenditure (PFCE) in FY20 was clearly visible in both current and constant prices. For FY20 as a whole the PFCE dropped by 300 bps in the current prices. The investment demand as captured in the Gross Fixed capital formation (GFCF) has also contracted sharply in real terms. The investment demand for FY20 has dropped b y whopping -12.6% which does not augur well for the growth revival in the ne ar term, the report said.
Since COVID related lockdown was only in the end of FY20, the decline suggests full year trend which will become more pronounced in Q1 FY21. In fact our research shows that health, safety and quality assurance will significant ly determine consumption into the future. Another major change which is being observed is the increased preference for local brands and cutting back discretionary consumption. All these will have material impact on consumption i n FY21, the Ecowrap report suggested.
Regarding the time taken by the countries to reach the pre-COVID growth levels, the report said that country-wise past recession experience suggests that the recovery in economic activity and the capital formation tends to be slow and it typically takes roughly 5 to 10 years (lost decade) for real economic activity to reach its former peak level.
"We now believe that we should implement an intelligent lock-down ex it strategy as the discussion has moved from debate between lives and livelihood to also between lives and lives as an elongated lockdown will only prolong irreversible growth collapse."
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