Advance estimates declared 20 days before the budget by the CSO :
Advance estimates are declared roughly a month before presentation of the Union Budget, these estimates are then used by the Government for their projections and estimates. This year as the budget was preponed to 1st February 2020, the advance estimates were announced yesterday ie 7th January 2020.
The advance estimates were compiled using the Benchmark-Indicator method where sector-wise extrapolation of
- IIP for April-October 2019
- Financial performance of listed companies for the first and second quarter
- Advance estimates of crop production
- Accounts of Centre and states
- Other high frequency data – car sales, air cargo data etc.
The second advance estimates will be released on 28th February 2020. Thus the data under consideration for the numbers declared was about 8-9 months that makes the task a little tricky. Also it has been found that in difficult years and times of uncertainties ( 2008-2009) this prediction often goes awry. This year the Economic Survey had predicted GDP at 7% for FY20, RBI had already cut this estimate earlier and now the Advance Estimates peg GDP at 5% for FY20.
What this data means
The GDP number at 5% is the lowest since 2008-09, which was the year of global financial crisis, growth in GDP at current prices or Nominal GDP at 7.5 percent is lowest since 1975-76.
Gross Value Added, which strips out the indirect tax and subsidies, is expected to grow at 4.9 percent compared to 6.6 percent last year.
Nominal GDP at 7.5 percent compared to 11.2 percent in the previous financial year is lower than the 12 percent growth used by the government for its fiscal calculations when it presented the budget in July 2019.
By that calculation fiscal deficit was pegged at 3.3 percent of the 211 lakh crore nominal GDP, the nominal GDP will now settle at 204 lakh crore and in percentage terms the fiscal deficit will be 3.44 percent altering the fiscal math.
The cuts to expenditure by the government, recently announced in response to fiscal deficit and this drop in nominal growth would imply that risks to growth in the current year are to the downside.
A closer look at the trends would reveal that Manufacturing and Construction growth are much slower as compared to last year. Agriculture growth as in any case slow and continues to be so as does mining. Suffice to say that it was the public administration segment supported by government spending that grew at 9.1 percent compared to 8.6 percent.
We can take solace from the lead indicators in November-December 2019 and hope for a modest improvement in economic growth going ahead. Growth in government spending will continue to support the economy.
But certainly even if second half of FY20 is better than the first, the economic revival will be in all likelihood delayed by another quarter and only in Q2 FY20-21 can we hope to see much better numbers and data from the economy.