Revised numbers reason for better GDP figure

Downward revision of growth numbers in two key sectors — agriculture and construction — in January-March 2008 by the Central Statistical Organisation (CSO) helped the Indian economy register better-than-expected growth of 5.8 per cent in the fourth quarter ended March 2009.

As growth in the current quarter (January-March 2009) is measured on the base of the corresponding period last year (January-March 2008), any downward revision of base numbers would increase the growth rate.

Had these numbers not been revised downwards, the economy would have grown at least 50 basis points lower. One basis point is one-hundredth of a percentage point. Agriculture and construction sectors account for nearly 26 per cent of India’s output.

“Some amount of statistical factors also contributed to the GDP figure,” said Abheek Barua, chief economist, HDFC Bank. “But there is some fundamental dimension to the latest GDP numbers for the fourth quarter. Services sector did well and the decline in the manufacturing sector was not as sharp as it was expected.”

CSO revised downwards the construction sector numbers, which account for nearly 9 per cent of India’s GDP, for the fourth quarter of fiscal 2008. This revision to 6.9 per cent as against the initial estimate of 12.6 per cent leads to 40 basis point upside to GDP growth, wrote Bank of America–Merrill Lynch economist Indranil Sen Gupta.

Agriculture is another sector where the government data agency revised downwards the growth numbers. As against the initial estimate of 3.5 per cent expansion in the fourth quarter of fiscal 2007-08, it was revised to 2.2 per cent. This led to higher agriculture growth of 2.7 per cent in January-March 2009.

“Without the revision, the growth in agriculture growth for January-March 2009, at 1.8 per cent, would have been much lower than the actual number,” said a research note from First Global.

Further revisions in numbers could be expected in the future as “discrepancies”, an adjusting factor in computing GDP, are found to be higher.

First Global said: “The addition of the contributions of various sectors to the incremental GDP is way higher than 100 per cent. The figure has been brought to 100 per cent by recording the discrepancies, which contributed a negative 62.6 per cent to the incremental GDP, thus indicating that further significant revisions can be expected in the coming quarters.”