NSO Estimates of GDP Growth

Why in News?

National Statistical Office (NSO) estimates of Gross Domestic Product (GDP) have pegged growth at 4.7% in the October-December 2020 period.

What is GDP?

• GDP is the total market value of all the finished goods and services produced within a country's borders in a specific time period.
• As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.
• Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

Why the estimate has pegged?

• The estimate for the GDP growth of the October-December quarter has pegged as it is a demand-filled festival season.
• This estimate is a distinct slowdown from the revised year-earlier and preceding quarters’ 5.6% and 5.1% paces respectively.

What are the sectors that saw drag?

• Manufacturing contributes under a fifth to gross value added (GVA).
• But, this sector saw the biggest drag posting a 0.2% decline and extending the sector’s contraction into a second straight quarter.
• Output at electricity and allied utility services shrank 0.7%, reflecting lack of demand from becalmed factories.
• Activity in construction softened worryingly to a 0.3% expansion, prolonging the industry’s slowdown for a third consecutive quarter.

What are the sectors improved?

• Agriculture and the three largest services sectors, including public administration and defence have shored up overall GVA.
• According to NSO estimates, farm output will expand by 3.5% and the government-centred services will grow by 9.7%.

What did the Centre assert quickly?

• The Economic Affairs Secretary cited an improvement in output at the 8 core industries as an uptick in momentum.
• So, the Centre was quick to assert that the economy appeared to have “bottomed out”.
• The overall growth at the 8 industries that include coal, steel, cement and electricity averaged 2.2% in January 2020.
• This growth was propelled by an 8% increase in coal production.
• The survey-based India Manufacturing Purchasing Managers' Index (PMI) of IHS Markit for February 2020 pointed to an improvement in manufacturing, clearly a positive sign.

What do the key components of GDP reveal?

• The key components of GDP are private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF).
• A closer look at the actual numbers for PFCE and GFCF across the three quarters belies hope that the economy is out of danger.
• A downward revision of data for 2018-19 have lent a statistical boost of 0.6 percentage point to the 1^st and 2^nd quarter GDP growth estimates.
• Disconcertingly the second-quarter PFCE and GFCF figures have been revised downward from what was projected earlier.
• Of concern is the second successive contraction in capital formation.
• GFCF shrank 5.2% in the 3^rd quarter, after declining 4.1% over July-September.
• This signals that in spite of government’s corporate tax cuts, investment activity is recovering.
• Consumption spending remains palpably soft with the pace of growth for all three quarters lagging the year-earlier levels even after the revision.

Why the bottom may still be distance away?

• Automobile sales are still floundering.
• The consumer confidence survey by the RBI points to a fall in non-essential consumption.

• The impact of the corona virus outbreak on global demand is yet to be factored in.
• Due to all these factors, the bottom may still be some distance away.

Source: The Hindu