The NSO’s advance estimates have factored in faster growth in H2, which looks difficult amid a third wave
The National Statistics Office’s First Advance Estimates of GDP for each fiscal year are based on a rough extrapolation of headline indicators for the first six to eight months and are mainly intended as inputs to the Budget-making exercise. The latest release estimating that real GDP and nominal GDP growth rates will be at 9.2 per cent and 17.6 per cent, respectively, in FY22 must therefore be read with caveats. Building on the low base effect caused by the pandemic, the NSO expects manufacturing (up 12.5 per cent against negative 7.2 per cent), construction (up 10.7 per cent against negative 8.6 per cent) and trade, hotels communication and transport (expand 11.9 per cent against the 18.9 per cent contraction last year) to take GVA growth to 8.6 per cent. Should this come good, both agriculture and industrial activity would exceed pre-pandemic levels (FY20 numbers) this fiscal while services activity would be just below it. The Advance Estimates are even more optimistic on nominal GDP, expecting it to grow 17.6 per cent in FY22 against a 3 per cent contraction last year. As this nominal GDP estimate makes up the denominator for the Union Budget’s deficit calculations, the generous expansion assumed will allow the Centre additional elbow-room on expenditure.
It is also interesting that, in expecting nominal GDP growth of 17.6 per cent against a real GDP growth of 9.2 per cent, the NSO is factoring in inflation at 8.4 per cent for FY22. If these are indeed the general inflation rates (wholesale and retail) prevailing in the economy, the MPC faces an even tougher trade-off between stimulating growth and reining in inflation than we think.