Govt cuts growth rate for 2018-19 after CEA says no GDP misestimation

The Union government on Friday (January 31) did a downward revision of the GDP for 2018-19 from 6.8 to 6.1 per cent. This comes hours after Chief Economic Adviser Krishnamurthy Subramanian asserted that there was no ‘mis-estimation of the GDP figures.’

The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) released the First Revised Estimates of National Income, Consumption Expenditure, Saving and Capital Formation for the financial year 2018-19 along with Second Revised Estimates for the financial year 2017-18 and Third Revised Estimates for the financial year 2016-17 (with Base Year 2011-12) as per the revision policy.

According to the estimates, the Indian economy grew at a far slower pace last year than projected earlier. According to the revision, the GDP growth in 2018-19 stood at 6.1 percent compared with the provisional forecast of 6.8 percent, according to the first revised estimates released by MoSPI.

Also read | Govt revises GDP growth rate for fiscal 2018-19 from 6.8% to 6.1%

Gross Value Added (GVA) growth was revised to 6 percent for the last fiscal compared with a provisional estimate of 6.6 per cent.

The fall in the GDP has been attributed to primary and secondary sectors which have pulled down growth in 2018-19. While the primary sector grew just 1 percent compared to the 2.7 per cent projected in the provisional estimates, the secondary sector grew 6 per cent as against 7.5 per cent earlier. The reasons for the variation in the agriculture sector was because of updating estimates of crop sector based on the 4th advance estimates.

The chronology 

Earlier in the day, Chief Economic Adviser (CEA) Krishnamurthy Subramanian said in his Economic Survey 2020 that India’s GDP growth is not overstated. He had a chapter titled, ‘Is India’s GDP Growth Overstated?’

“As investors deciding to invest in an economy care for the country’s GDP growth, uncertainty about its magnitude can affect investment. Therefore, the recent debate about India’s GDP growth rates following the revision in India’s GDP estimation methodology in 2011 assumes significance, especially given the recent slowdown in the growth rate. Using careful statistical and econometric analysis that does justice to the importance of this issue, this chapter finds no evidence of mis-estimation of India’s GDP growth,” he said.  The CEA went on to say that concerns of a misestimated Indian GDP were unsubstantiated and were thus ‘unfounded.’

Fall in savings, investments 

According to the first revised estimates put out on Friday, in FY 2018-19, the savings rate and gross capital formation fell. Gross savings declined by 3.2 per cent in FY19. Gross saving as a percentage of gross national disposable income for 2018-19 is now estimated at 29.7 per cent as against 32 per cent for 2017-18. The gross capital formation-to-GDP ratio fell to 32.2 per cent for 2018-19 from 34.2 per cent in 2017-18. Gross capital formation refers to the aggregate of gross additions to fixed assets (that is fixed capital formation) plus change in stocks during the counting period.’

Also read | From Thalinomics to GDP: Survey moots counter-cyclic fiscal measures

Fixed asset refers to the construction, machinery and equipment.

The second advance estimates for the year 2019-20, along with quarterly estimates for Q1 (April-June), Q2 (July-September) and Q3 (October-December) of 2019-20 will be made available on  February 28, 2020; and Provisional Estimates for the year 2019-20, along with estimates for all the four quarters of the year on May 31, 2020.