NSO's puzzling second half growth estimates

by Manasi Swamy

The National Statistical Office (NSO), in its first advance estimates, projected India’s real gross domestic product (GDP) to grow by 7 per cent in 2022-23. The growth estimate appears a little optimistic and the composition of the growth is substantially unrealistic.

Most forecasters were expecting the Indian economy to deliver a sub-7 per cent GDP growth in 2022-23. The Reserve Bank of India (RBI) had a projection of 6.8 per cent GDP growth for 2022-23. CMIE’s GDP growth projection was 6.7 per cent. India Ratings, Motilal Oswal and Nomura were expecting the growth to be even lower in the range of 6.5-6.6 per cent. Median GDP growth projection of the survey of 43 professional forecasters conducted by the RBI in the second half of November 2022 was 6.9 per cent. The International Monetary Fund (IMF) and the World Bank had forecast India’s GDP to grow by 6.8 per cent and 6.9 per cent, respectively. The international rating agencies S&P Global Ratings and Fitch Ratings, however, were expecting India’s GDP to grow by 7 per cent, as projected by the NSO.

The NSO has already estimated India’s real GDP to have grown by 9.7 per cent to Rs.75 trillion (in 2011-12 prices) in the first half of 2022-23. The advance estimates for 2022-23, when seen in conjunction with this, imply that real GDP in the second half of 2022-23 would amount to Rs.82.59 trillion (in 2011-12 prices). This implies a 4.5 per cent growth over the GDP of Rs.79 trillion (in 2011-12 prices) recorded in the second half of 2021-22.

The drastic difference between the NSO’s stated GDP growth for the first half and the growth implied for the second half is not surprising. The near double-digit growth recorded in the first half had benefitted from the weak base of last year when the economy battled with the second wave of coronavirus infections. Since the base for the second half is not similarly favourable, the growth rate was widely anticipated to report a sharp drop.

What is actually perplexing is the NSO’s pessimism on domestic demand and optimism on export demand in the second half of 2022-23.

The NSO has projected private final consumption expenditure (PFCE) to grow by 7.7 per cent in 2022-23. This growth comes entirely from the first half, while the second half has been implicitly projected to see a year-on-year contraction in PFCE of 0.2 per cent. If the projection turns out to be correct, this would be the first instance of a year-on-year contraction in PFCE in the second half of any fiscal since at least 1997. The logic of this extraordinary pessimism is unclear.

Equally unclear is the NSO not anticipating any significant weakening of exports given expectations of global economic slowdown. It has projected exports to grow year-on-year by 11.9 per cent in the second half of 2022-23, which is quite similar to the 13 per cent growth recorded in the first half. This is strange. The NSO expects imports to show a sharp deceleration in year-on-year from 30.9 per cent in the first half to 12.2 per cent in the second.

Investment demand in India, measured by gross fixed capital formation (GFCF), has been projected to grow by 11.5 per cent in 2022-23. This, if realized, would be the second highest GFCF growth since 2011-12. GFCF had last grown faster than this in 2021-22, by 15.8 per cent, which was essentially a recovery from the 10.4 per cent fall suffered in the preceding year of Covid-19 pandemic. GFCF growth projection of NSO for the second half of 2022-23 works out to 8.4 per cent. This is far better than our expectation. The NSO seems to be anticipating a pick-up in private corporate capex in the second half of 2022-23. Trends seen in CMIE’s Prowess and CapEx database as also the RBI’s OBICUS or order books of companies do not give us adequate confidence to believe the 8.4 per cent growth in GFCF in the second half.

The NSO projects government private final consumption expenditure (GFCE) to increase by 7.2 per cent in the second half of 2022-23, after reporting a 1.3 per cent contraction in the first half. For the year as a whole, GFCE has been projected to increase by 3.1 per cent. It needs to be noted, that this would be the fourth consecutive year of a sub-4 per cent growth in GFCE.

The NSO has accounted for Rs.4.07 trillion of discrepancies* in the first advance estimates of GDP for 2022-23. About 70 per cent of these have been accounted for in the second half. The discrepancies in the second half account for 3.4 per cent of GDP and are the second largest source of the growth after GFCF.


*Discrepancies refer to the difference between GDP and GVA (Gross Value Added). In India’s National Accounts Statistics (NAS), GVA computed by the production approach is considered to be more accurate and statistical discrepancies are explicitly provided on the expenditure side as a part of GDP.

References
1. https://www.indiabudget.gov.in/doc/Budget_at_Glance/bag3.pdf
CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.3 +0.7
Consumer Sentiments Index
Base September-December 2015
84.9 0.0
Consumer Expectations Index
Base September-December 2015
84.0 0.0
Current Economic Conditions Index
Base September-December 2015
86.4 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 22 Jun 22 Sep 22 Dec 22
New projects 8.68 5.20 4.42 6.68
Completed projects 1.33 1.18 1.36 1.61
Stalled projects 0.43 0.53 0.07 0.01
Revived projects 0.33 0.29 0.12 0.32
Implementation stalled projects 0.09 0.29 0.26 0.11
Updated on: 07 Feb 2023 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 22 Jun 22 Sep 22 Dec 22
All listed Companies
 Income 20.8 40.1 25.2 19.3
 Expenses 19.8 41.4 27.1 20.3
 Net profit 31.6 21.1 -1.4 2.7
 PAT margin (%) 8.8 7.2 7.8 9.9
 Count of Cos. 4,686 4,704 4,582 1,443
Non-financial Companies
 Income 24.8 50.1 27.9 17.9
 Expenses 25.7 52.9 31.5 20.2
 Net profit 10.1 8.4 -21.0 -15.7
 PAT margin (%) 7.6 5.7 5.7 7.1
 Net fixed assets 2.0 4.1
 Current assets 15.0 19.1
 Current liabilities 11.6 10.4
 Borrowings 3.6 12.8
 Reserves & surplus 11.2 7.6
 Count of Cos. 3,398 3,424 3,373 1,058
Numbers are net of P&E
Updated on: 07 Feb 2023 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.4 26.0
 Expenses 0.3 -3.6 24.9
 Net profit -3.0 74.5 63.3
 PAT margin (%) 2.0 4.5 7.2
 Assets 8.9 10.7 9.9
 Net worth 4.8 12.0 14.0
 RONW (%) 3.4 6.9 11.5
 Count of Cos. 31,839 30,688 14,155
Non-financial Companies
 Income -1.1 -2.5 30.7
 Expenses -0.9 -4.4 30.4
 Net profit -20.5 62.4 61.3
 PAT margin (%) 2.3 4.0 6.2
 Net fixed assets 11.4 2.4 2.1
 Net worth 2.1 10.6 14.5
 RONW (%) 4.7 7.6 12.7
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 1.9 2.5 4.0
 Net working capital cycle (days) 73 82 59
 Count of Cos. 25,106 24,021 11,477
Numbers are net of P&E
Updated on: 04 Feb 2023 5:32PM