Some dubious elements of the Q1 GVA growth

by Mahesh Vyas

The agricultural sector has done exceptionally well in the first quarter of 2018-19. Real GVA grew 5.3 per cent y-o-y in June 2018 over a reasonable 3 per cent growth in June 2017. The sector has been clocking an average real growth of 4.8 per cent during the past nine quarters. In the new GDP series, the agricultural sector has never seen such robust growth rates over such a long period. Evidently, farmers have no complaint over their output. Their problem is the price they obtain. We will revert to prices but first a little more on the output.

MOSPI’s press note states that its agriculture estimates are based on information furnished by the Department of Agriculture, Cooperation and Farmers’ Welfare. The Department had published its fourth Advance Estimates for 2017-18 in the last week of August. According to this, the rabi cereal output was up by 4 per cent, pulses was up by 17.3 per cent and oilseeds were up by 5.76 per cent. Each of these impressive growth rates are over equally impressive growth in the previous year.

However, this impressive growth rate does not square with the sowing data released by the Department of Agriculture, Co-operation and Farmers’ Welfare during the rabi sowing season. According to this, area under cereals was down by 2.4 per cent, that under pulses was up by 5.3 per cent and area under oilseeds was down 4.9 per cent. Does this imply a massive increase in productivity? We will have to wait for the answer to that till the yield data is published later. But, as of now, data from the Ministry of Agriculture for rabi 2018 does not add up.

Now on prices, while real agricultural output grew by an impressive 5.3 per cent, the farm sector did not see such an impressive increase in real income. Prices obtained by the farm sector need to be offset against inflation faced by them. According to the CSO’s estimates, nominal agricultural incomes grew by 6.95 per cent, y-o-y in the first quarter of 2018-19. During the same period, rural inflation in consumer prices was 4.82 per cent. Thus, the effective real growth experienced by the farming community was 2.13 per cent. This is less than half the growth in real agricultural output. On a per capita basis this could barely be any positive growth. This is the source of the farm agitation. While their output is growing, their incomes are not.

Industry grew by an impressive 10.3 per cent in the first quarter of 2018-19. But, this is largely the result of a low base. In June 2017, industry had grown by a mere 0.13 per cent, y-o-y. This base effect helped the manufacturing sector and the construction sector - the two biggest components of the industrial sector - to post handsome growth rates of 13.5 per cent and 8.7 per cent, respectively, in the current quarter.

The manufacturing sector’s growth is derived using financial statements of private sector listed companies and the index of industrial production. The former has a 75 per cent share in computations. GVA of this predominant component is derived by adding the growth in wages, profit before tax and depreciation and by deflating these with price deflators.

CMIE’s Prowess database that provides the financial statements for such companies shows that the changes in GVA in manufacturing will reflect to a very large extent the changes in profits of a few large private sector listed companies. Here is why:

Profit before taxes account for 55 per cent of total GVA of listed private sector manufacturing companies. Wages account for 30 per cent and depreciation for the remaining, 15 per cent. This substantially lower share of wages is somewhat surprising. Profits have a large share and their year-on-year growth rates are volatile. In the June 2018 quarter, the y-o-y growth in PBT was 81 per cent. Growth in GVA of the manufacturing sector therefore reflects, to a large extent, the profits performance of the private listed corporate sector in India.

Further, only a few companies play a dominant role in determining the GVA of the manufacturing sector. Reliance Industries alone accounted for 12 per cent of the total GVA of all private sector listed companies and only 25 companies accounted for 50 per cent. In the computation of manufacturing GVA, private listed manufacturing companies have a share of 75 per cent.

The low share of wages in GVA possibly explains why the falling growth of employment in GVA is not reflected in GVA growth.

CSO does not provide the break-up of the corporate sector-based growth rates and those obtained from IIP.

The construction sector’s growth rate is based on the growth seen in inputs such as cement, finished steel and non-metallic minerals. These have performed very well during the June 2018 quarter although this was because of the poor performance in the base period.

Growth of the services sector has slowed down. The sector grew by 7.35 per cent in the June 2018 quarter compared to 9.48 per cent in the year-ago quarter. Each of the three major segments - (a) trade, hotels, transport, storage and communications, (b) financial services, real estate and professional services and (c) public administration, defence and other services - saw a drop in growth rates in the first quarter of 2018-19 compared to the first quarter of 2017-18.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.2 -0.1
Consumer Sentiments Index
Base September-December 2015
53.9 +0.3
Consumer Expectations Index
Base September-December 2015
55.7 +0.5
Current Economic Conditions Index
Base September-December 2015
51.1 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.80 0.83 1.05 0.86
Completed projects 1.77 0.25 0.72 0.58
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.08
Implementation stalled projects 10.18 0.09 0.07 0.12
Updated on: 22 Jan 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.2 9.0
 Expenses -1.9 -27.9 -10.1 5.8
 Net profit -48.9 -40.3 45.2 35.8
 PAT margin (%) 2.3 5.3 8.3 19.0
 Count of Cos. 4,357 4,351 4,316 218
Non-financial Companies
 Income -9.0 -37.4 -10.4 11.3
 Expenses -4.9 -37.6 -14.0 7.0
 Net profit -50.1 -55.8 29.9 50.9
 PAT margin (%) 3.2 4.5 8.0 19.1
 Net fixed assets 13.3 5.9
 Current assets 3.6 0.8
 Current liabilities 6.2 -2.8
 Borrowings 15.8 8.1
 Reserves & surplus 1.3 4.5
 Count of Cos. 3,241 3,239 3,219 153
Numbers are net of P&E
Updated on: 22 Jan 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 0.3
 Expenses 9.9 13.8 0.5
 Net profit -41.4 18.5 -11.8
 PAT margin (%) 1.9 2.2 3.8
 Assets 10.9 9.5 9.3
 Net worth 7.4 8.5 4.7
 RONW (%) 3.4 4.0 5.5
 Count of Cos. 29,431 28,732 9,883
Non-financial Companies
 Income 8.6 14.1 -2.6
 Expenses 8.8 14.3 -1.8
 Net profit -10.1 22.6 -24.0
 PAT margin (%) 2.7 3.0 3.9
 Net fixed assets 7.2 5.5 12.4
 Net worth 6.0 8.2 1.7
 RONW (%) 5.6 6.6 6.8
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.3 2.6
 Net working capital cycle (days) 77 70 59
 Count of Cos. 23,809 23,199 7,312
Numbers are net of P&E
Updated on: 20 Jan 2021 2:19PM