What to expect from GDP numbers today | Economic Times

Dr SK Ghosh, Group Chief Economic Advisor, SBI in conversation with Tamanna Inamdar of ET NOW on what to expect from GDP numbers . What are you looking for from GDP numbers?We are looking for three clear things. The first thing we are looking for is the total amount of loss in the first quarter. Last year, the total loss was estimated at Rs 11 lakh crore and subsequently as the economy turned the corner, the losses went down significantly. So the first thing we would like to see is what is the loss in Q1 of this year compared to the first quarter of last year. Consensus estimates show that the second wave impact has been much more muted than the first wave. The second important thing that will make the difference, is the gap between the GDP and the GVA estimates. One could see a significant divergence between the GVA and GDP estimates because of the indirect tax collections in the first quarter of the current fiscal. Indirect tax collection is one of the highest in the last several decades and given the fact that indirect taxes less subsidies are added to the GVA to get a GDP number. To me what is important is the GVA number. If the gap between the two is significantly on the higher side, then I will obviously look at the GVA numbers because this tax collection could be some sort of statistical artefact which is propping up the final number. The third point is that whether it could be more than 20% or it could be less than 20%, will entirely depend on how the net indirect taxes number is given out. What would tell us that we have turned the corner? A high of even 20% plus GDP growth in Q1 would just be a statistical aberration because it comes on the back of a really big plunge in growth last year at the same time. Even if we grow at 20% or 21%, we would still be 3% lower than complete no growth or no reduction situation?I think you are correct. The best way to compare it is with the Q1 FY20 number and also look into the quarterly, seasonally adjusted growth rate over every quarter. The year on year number may not have much meaning but I would like to look into the quarter on quarter momentum and whether it is higher than the historical figures because that will give an idea that the economy has got some sort of momentum. But the good thing is that the mobility numbers like the business activity index in June and July has actually moved up and that is the reason why a lot of people are saying that that growth would be in the 20s or even some of the numbers which are actually going could be in excess of 25%. This is because globally there has been a consensus during the first wave that higher the mobility, the higher could be the GDP. But I would like to take a contrary view over here. When we are comparing the first quarter growth rate -- which has now been announced by almost most other countries -- the average growth rate was around 12%. So even if India grows at say 18% or 20%, it will be higher than the average but whether that increased mobility translates into a higher economic activity or it will transfer into higher economic activity and whether it will translate into higher output or GDP growth over a point of time, only time can tell because historical evidence shows that this link gets weaker as we have moved along from the last year. So the incremental benefits from a higher mobility as the economy opens up continuously could become lower as we move along in this year. The Q1 numbers will also possibly take into account the hit we have had from the second wave. Do you think it is safe to say that we have had a pretty robust recovery and also what are the headwinds you see ahead?Yes, we can say that the recovery has been good and robust in terms of mobility indicators. But let me just point out some points of caution over here. When the CSO released the data in May of this year, the decline in private final consumption expenditure in 2021 was around Rs 7.5 lakh crore. The other important thing is that all along, we have been showing that there is an asymmetry in the numbers. For example, corporate tax collections in FY21 had declined by around Rs 1 lakh crore from the budgeted numbers, but the tax collections of the larger corporates have increased significantly. That means the smaller companies have not been doing that well if we just purely go by tax collections. So this dichotomy between the larger corporates and the smaller corporates, the dichotomy between the organised sector and the unorganised sectors and the dichotomy between the haves and the have nots is the important thing which we need to see in the coming days. The dichotomy will be clear if we go by the expenditure side numbers because that has not been much encouraging even in FY21 and I will closely look into that number to see whether the consumption expenditure has continued to moderate or there has been some traction in the first quarter. The other part of the puzzle when we are talking about the Indian economy that will have an impact is inflation. Your long standing demand that tax on petrol and diesel prices should be cut is clearly not going to be listened to right now. Do you think it is sustainable to keep taking such high taxes on petrol and diesel? What is the long-term impact on consumption because of this?In the past also, we have pointed out that higher fuel prices have significant impact on discretionary consumption and if we keep fuel prices at this level, it will be very difficult to sustain the recovery. If I leave aside petrol prices, for diesel prices also, the terms of trade have moved adversely on the agricultural sector. Given the fact that the agricultural sector is not having the best of monsoon in terms of the distribution, could impinge on the rural sector growth rate. The other important thing is there has been a lot of debate on inflation. Terming the inflation episode as transitory has been done by all central banks across the world including RBI. Inflation by definition can only be transitory if there is no second round impact. But to me, if the fuel prices stay at this level for an extended period, when the economy opens up and people start moving around more, the second round impact could pinch us much more and from that point of view if the expectations get anchored, the inflation numbers may not be decline from the current levels. Please remember that India’s inflation was higher during the pandemic also as opposed to other economies where inflation is lower during the pandemic and has moved up and has been higher even post pandemic. So I am not sure whether the inflation trajectory is permanent or transitory. I hope it is transitory, but the fuel prices need to be adjusted as that will aid recovery when the economy opens up after sufficient numbers of people have been vaccinated. Last year we saw the recovery really started to come in from the festive season. Are you hoping to see a similar trend this time around as well?I hope that happens but a lot of states are still not opened up fully. We have been hearing news every day that states are extending their lockdowns into September. West Bengal is one state which yesterday announced that lockdown restrictions will continue and my sense is that the scenario is still completely uncertain. If we hope that the third wave is at least like the first wave, that would be a definite booster for the consumption sentiments. But as of now, no one knows what could be the extent of the third wave. We can only hope that it is not as bad as the second wave.