The National Statistical Office (NSO) recently revised its Gross Value Added (GVA) estimates for the first three quarters of the financial year 2019-2020. The revised data indicate a deeper weakness in the service sectors than was previously estimated, with significant reductions in the growth rates for Financial, Real Estate and Professional Services as well as Trade, Hotels, Transport, Communications and Broadcasting services.
Key Revisions in GVA
The NSO’s provisional data revealed significant revisions from the estimates shared back in February 2020. Initially, the NSO predicted year-on-year GVA growth rates for the first three quarters at 5.4%, 4.8%, and 4.5%. However, the revised estimates place these figures at 4.8%, 4.3%, and 3.5% respectively, pointing to a deeper economic slowdown than initially assessed.
The Impact on Annual GVA Growth Estimates
The revised GVA growth rates combined with poor performance in the fourth quarter have brought down the overall annual GVA growth estimate for 2019-20 by as much as 1% to just 3.9%. This is a significant drop from the 4.9% forecast in February.
Services Sector Sees Major Downward Revisions
The revisions indicate that the largest services sector – Financial, Real Estate and Professional Services – has seen a significant reduction in growth estimates. Initial figures for Q1, Q2, and Q3 were 6.9%, 7.1%, and 7.3%, but these were later revised to 6%, 6%, and 3.3% respectively.
Revisions Highlight Improvement in Agriculture and Public Administration
In contrast to the service sectors, both the Agriculture and Public Administration sectors received positive revisions. The Public Administration sector’s Q1, Q2, and Q3 growth estimates were revised upward from 8.7%, 10.1%, and 9.7% to 7.7%, 10.9%, and 10.9%.
Understanding Gross Value Added
Gross Value Added is a measure of economic activity that provides the rupee value for goods and services produced in an economy after deducting the cost of inputs and raw materials used in the production. It is considered a critical indicator of a nation’s economic health and performance.
The Shift in India’s GVA Calculation Methodology
In 2015, India decided to bring its national accounts compilation process in line with the United Nations System of National Accounts (SNA) of 2008. The SNA is the internationally agreed standard set of recommendations on how to compile measures of economic activity. As a result of this alignment, India moved from measuring GVA at ‘factor cost’ to measuring it at ‘basic prices’.
The Importance and Limitations of GVA
While GVA gives a picture of economic activity from the producer’s side, GDP represents the consumers’ perspective. Policymakers often use the sector-wise breakdown provided by the GVA measure to decide which sectors require incentives or stimulus. However, the accuracy of GVA heavily depends on the sourcing of data and the accuracy of the diverse data sources. Consequently, GVA can be vulnerable to inappropriate or flawed methodologies.
