What NSO's GVA estimates reveal

by Manasi Swamy

The National Statistical Office (NSO) pegged India’s real GVA growth for 2019-20 at 3.9 per cent in the provisional estimates released on May 29, 2020. This is the lowest growth the Indian economy has recorded in the last 11 years. The NSO estimated the GVA growth for the March 2020 quarter at three per cent. Although the lowest in at least the last 32 quarters, the March quarter GVA growth was a pleasant shock for economists and financial markets. They had expected the growth to be even lower, as the quarter spanned seven days of Covid-19 induced lockdown during which the economy had come to a grinding halt. A Reuters poll of 52 economists had a median projection of 2.1 per cent for the March quarter growth. Six participants had even projected a year-on-year contraction.

CMIE had projected a growth of 2.2 per cent in real GVA in the quarter ended March 2020.

The better-than-expected March quarter GVA growth seems like a glad tiding, prima facie. But, the estimate is far from being realistic and runs high risk of a significant downward revision.

There is no bone of contention that GVA nearly halved year-on-year in the last seven days of the March 2020 quarter, as construction, real estate, hotels, non-essential transport, non-essential manufacturing and mining activity and retail sales of non-essentials were strictly prohibited during the lockdown. Data released by other ministries under the Government of India testifies this. Production of steel and cement, which are used for estimation of construction GVA by the NSO, reported 24-25 per cent fall in the entire month of March 2020. The Index of Industrial Productin (IIP) contracted by 16.7 per cent during the same month. Aircraft movement was down by 23 per cent and railway freight traffic, despite continuing transportation of essential items, declined y-o-y by 13.9 per cent in March 2020.

The corollary of the NSO’s three per cent GVA growth estimate for the March 2020 quarter, hence, is that the GVA grew by 7.4 per cent in the first 84 days of the quarter. This sudden surge in growth and its quantum looks near impossible for an economy that was slowing down rapidly for the last two years. The last time India reported a 7+ per cent growth was in the March 2018 quarter. Besides, state governments had already started imposing restrictions on a few economic activities from the second and the third week of March.

The NSO’s GVA estimates make two other big revelations.

First, the Indian economy was slowing down before the lockdown more rapidly than was discernable in the official data before. This is evident from the fact that the NSO revised its GVA growth estimates for the first three quarters sharply downwards in its recent data release. It slashed the June 2019 quarter growth from 5.4 per cent to 4.8 per cent, the September 2019 growth from 4.9 per cent to 4.3 per cent and the December 2019 quarter growth from 4.5 per cent to 3.5 per cent.

As per the latest estimates, the GVA growth decelerated from 7.6 per cent in the March 2018 quarter to 5.6 per cent in the March 2019 quarter. The growth slowed down more rapidly in 2019-20, to 3.5 per cent by the December 2019 quarter. This marks a loss of two percentage points in a span of just three quarters. And, it decelerated further to three per cent in the March 2020 quarter.

Second, the sectoral break-up of GVA estimates reveals the vulnerabilities the Indian economy has developed over the last one year.

GVA growth slowed down to 3.9 per cent in 2019-20 from six per cent in the preceding year led by a sharp deceleration in growth of the manufacturing sector, construction, trade, hotel, transport & communication services and real estate & financial services . Collectively, their growth slumped by four percentage points; from 6.7 per cent in 2018-19 to 2.7 per cent in 2019-20. This was largely a reflection of weak demand as except construction that faced a liquidity crisis, none of the other segments suffered any capacity constraints.

The economy particularly thrived on the growth of the agricultural sector and public spending in the March 2020 quarter. Agriculture grew by 5.9 per cent and public administration, defence & other services grew by 10.1 per cent. Had it not been for these two, the GVA growth would have fallen to as low as 1.1 per cent. The manufacturing sector and the construction sector suffered a 1.4 per cent and 2.2 per cent contraction in GVA, respectively. GVA of trade, hotel, transport & communication services and real estate & financial services did grow in the range of 2.4 to 2.6 per cent. But, their growth was the lowest in at least last 32 quarters.

The agricultural GVA grew in the March 2020 quarter as sowing of Rabi crops increased by 9.5 per cent. However, it is unlikely to have translated into a similar growth for the farm sector in the June 2020 quarter, as farmers faced a lot of hardship in harvesting, storing, transporting and selling the crop in mandis. And, growth prospects of the agricultural sector in the remaining quarters of 2020-21 remain vulnerable to vagaries of nature.

The other segments of the economy are already on a weak footing to battle supply-chain issues, labour scarcity and demand impairment caused by the Covid-19 induced lockdown. This poses a very high risk to the Indian economy of slipping into recession.

Unemployment Rate
Per cent
9.1 -0.0
Consumer Sentiments Index
Base September-December 2015
42.7 0.0
Consumer Expectations Index
Base September-December 2015
44.9 +0.7
Current Economic Conditions Index
Base September-December 2015
39.4 -1.1
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.12 5.15 3.39 0.57
Completed projects 0.85 1.65 1.70 0.17
Stalled projects 0.41 0.61 0.77 0.11
Revived projects 0.43 0.83 0.42 0.53
Implementation stalled projects 0.90 0.15 9.30 0.07
Updated on: 10 Jul 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Jun 19 Sep 19 Dec 19 Mar 20
All listed Companies
 Income 4.6 -2.3 -1.7 -4.0
 Expenses 2.7 -3.1 -2.2 -0.9
 Net profit 17.5 -1.3 -11.1 -44.3
 PAT margin (%) 6.2 5.3 5.1 3.0
 Count of Cos. 4,486 4,445 4,407 2,657
Non-financial Companies
 Income 2.4 -6.3 -5.5 -8.2
 Expenses 1.6 -6.7 -6.4 -4.1
 Net profit -7.5 -13.5 -14.1 -46.0
 PAT margin (%) 6.3 5.8 5.7 4.2
 Net fixed assets 10.4 13.8
 Current assets 5.0 2.8
 Current liabilities 5.0 3.8
 Borrowings 8.4 14.9
 Reserves & surplus 6.0 4.3
 Count of Cos. 3,361 3,335 3,301 2,050
Numbers are net of P&E
Updated on: 10 Jul 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.3 13.2 4.3
 Expenses 9.8 13.4 2.8
 Net profit -39.9 20.7 15.0
 PAT margin (%) 2.0 2.4 10.3
 Assets 10.9 9.2 11.8
 Net worth 7.5 8.5 6.5
 RONW (%) 3.5 4.4 11.7
 Count of Cos. 26,220 24,732 364
Non-financial Companies
 Income 8.5 13.6 0.1
 Expenses 8.6 13.8 -1.2
 Net profit -8.7 23.5 4.6
 PAT margin (%) 2.8 3.2 12.7
 Net fixed assets 7.1 4.9 30.4
 Net worth 6.1 8.4 3.6
 RONW (%) 5.7 7.0 15.3
 Debt / Equity (times) 1.0 0.9 0.5
 Interest cover (times) 2.1 2.4 6.3
 Net working capital cycle (days) 77 69 -13
 Count of Cos. 21,415 20,146 258
Numbers are net of P&E
Updated on: 09 Jul 2020 7:12PM