Why India’s GDP growth may be even slower than what the government data shows

The economy officially grew 6.6% in the third quarter of 2018-’19. But this doesn’t reflect in growth indicators like car sales, corporate earnings, exports.

Gross Domestic Product estimates for the third quarter – October to December, 2018 – indicate that the Indian economy has slowed, with growth down to 6.6% year-on-year, the lowest in at least five quarters. However, even this official estimate is optimistic, so advance growth estimates for the fourth quarter are likely to be overestimates as well.

The government has multiple data sources that analysts outside it do not have access to. This makes it impossible to debunk the GDP estimates. But multiple data are also available in the public domain, and those seem to indicate that the economy has slowed more than the official estimates show.

We can look at vehicle sales, for one. They are a good barometer of GDP growth because they indicate consumption demand. Also, the automotive industry has a long value chain reaching back to primary activity such as mining (basic metals), manufacturing (plastics, leather, forgings, electronics, glass) and forward to the service sector, including areas such as finance, advertising and marketing. The industry also supports a vast number of jobs in repair, maintenance and energy sectors.

We can also look at railway freight movements and port cargo volumes which are obviously linked to economic activity. We can examine corporate results across the period which indicate how profitable companies were, across sectors. We also have organisations like the Centre for Monitoring Indian Economy, or CMIE, which estimate employment and track project activity. We have energy consumption numbers, fertiliser consumption data, import and export data as well.

All these indicators have direct relationships with economic activity, and they suggest India’s economy may not have grown by 6.6% compared to October-December 2017.

Reading the numbers

Domestic car sales fell 0.8% in the third quarter of 2018-’19 compared to October-December 2017, which itself was a weak quarter with sales down 0.5% compared to the third quarter of 2016-’17, according to the Society of Indian Automobile Manufacturers. However, commercial vehicle sales did grow, by 6.6%, as did sales of scooters (up 4%) and motorcycles (up 11%). Historically, GDP growth of about 7% has tended to be accompanied by double-digit growth in every vehicle segment.

Let’s look at a few other items.

  • The two biggest items in India’s imports basket are oil and gold. Oil consumption in the third quarter was up by 2.2%, which is marginal and, again, inconsistent with 6.6% GDP growth. Going by historical trends, GDP growth of 6.6% should see energy consumption grow at around the same rate.
  • Gold is not a good indicator of economic activity or demand; it is a hedge. If we leave out gold and petroleum, India’s imports dropped marginally year-on-year.
  • India’s exports similarly include petro-products as a major item. If we leave out petro-products and look only at non-petro exports, then India’s exports grew by 1.1%, according to the commerce ministry. GDP, in other words, did not receive much of a boost from trade.
  • We do see rail freight revenues up by 6%. This is lower than one would expect, although it is still a positive sign.
  • Growth in the consumption of cement (up 13%, as per the Cement Manufacturers’ Association) and steel (4.5%) indicates an uptick in construction activity, perhaps driven by the government.
  • Major ports – which are controlled by the Centre and handle nearly 58% of the country’s port traffic, according to the Indian Ports Association – saw traffic volumes rise by 2% year-on-year.
  • Fertiliser consumption dropped by 9%, a sign of rural distress and a slowing agroeconomy.
  • Corporate results for the third quarter of 2018-’19 show a pattern of slowdown as well, and falling margins. The Reserve Bank’s Monetary Policy Committee pointed this out in its February 2019 policy review, citing sluggish vehicles sales, lower capital goods production, industrial deceleration, among other causes. A Business Standardanalysis of a large sample of 2,338 listed companies indicates that combined net profit fell 28% compared to the third quarter of 2017-’18. Revenues rose by 17% year-on-year which was a sequential slowdown from a growth of 19.6% in the second quarter, July-September 2018. This tallies with the Goods and Services Taxcollections for the third quarter, which grew by about 17% year-on-year.

The CMIE notes that the number of new projects fell by 24.14% in the third quarter, that of completed projects fell by 8.35% while the number of stalled projects jumped by 247%. The CMIE also estimates that unemployment rose through this period, hitting a 15-month high in December with around 11 million jobs lost during the calendar year.

The growth in government expenditure exceeded GDP growth in the current financial year as it did in 2017-’18. This is a sign of a countercyclical policy where the government is desperately propping up growth even while insisting that all is well.

Official advance estimates suggest GDP growth will be just below 7% for 2018-’19. That is very likely an optimistic estimate. But given how GDP data has been revised, and massaged, over the past several years, the official figures could yet deliver a positive surprise. Their credibility, though, will be questionable.


    • The two biggest items in India’s imports basket are oil and gold. Oil consumption in the third quarter was up by 2.2%, which is marginal and, again, inconsistent with 6.6% GDP growth. Going by historical trends, GDP growth of 6.6% should see energy consumption grow at around the same rate.

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