Four reasons why it is too early to celebrate Q3 GDP data

 Dipak Mondal        Last Updated: March 1, 2017  | 18:23 IST
Q3 GDP data: Too early to celebrate

The second advanced estimate of the gross domestic product (GDP), released by the Central Statistics Office (CSO) yesterday, has thrilled the government and supporters of demonetisation. CSO retains its earlier GDP growth rate of 7.1 per cent for the year, thus proving doomsayers, who predicted the GDP growth rate to fall by 100-150 basis points post demonetisation, wrong.

The third quarter GDP growth number has also been pegged at 7 per cent against much lower industry estimates. For example, Care Rating had estimated GDP growth to drop to 5.4 per cent, while the consensus view was around 6 per cent growth in third quarter.

However, economists are advising caution before we start celebrating the 'good' numbers yet. And there are  reasons for them being less optimistic than what the advance estimate suggests.

These are only advance estimates: These are only advance estimates and there would be a series of changes and revisions before we get the real picture. The revisions happen because you get more information about the year. This is an advance estimate based on first set of numbers that was available with the CSO.

Informal sectors are not captured yet: Economists suggest that much of the informal and unorganised sectors may not have been captured in the advance estimates and as and when these numbers come and these sectors are captured well, there could be a downward revision.

Lag effect of demonetisation to be visible in fourth quarter:  According to some experts, the third quarter number may not have factored in the entire short term impact of demonetisation. The impact of demonetisation is likely to be more visible in fourth quarter when the lag effect of November and December become more pronounced.

Agriculture only saving grace:  The industry wise growth data suggests the better than expected numbers is mostly because of sharp improvement in the agriculture output due to a good monsoon. However, most other sectors have shown significant drop in growth rate. For example, mining and quarrying droped from 13.3 per cent in third quarter of 2015/16 to 7.5 per cent in the corresponding period in this financial year. Similarly, manufacturing sector growth dropped from12.8 per cent to 8.3 per cent.

While the advance GDP estimates have given the government some relief, economists are not fully convinced by the numbers put out. It is to be seen if these numbers remain unchanged when the revised estimates come.

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