GDP numbers hide more things than they reveal: SBI Ecowrap

SBI’s research paper, Ecowrap, has cautioned against rejoicing about the significant growth numbers of the GDP. The Indian economy grew by 13.5 per cent in Q1 FY23. But the latest SBI Ecowrap stated that headline GDP hides more things than it reveals. The research paper said that even though GDP grew in double digits, it still came way below the market expectations. The paper blamed the growth in the manufacturing sector that grew by a measly 4.8 per cent in Q1.

It said that it believes that the estimation of manufacturing sector growth needs serious introspection in the sense that IIP is still indexed at 2012 base. The CPI basket has also not changed since 2012, which might have resulted in overstating of CPI at multiple times. 

“Take the example of manufacturing exports. Till pre pandemic, the IIP and manufacturing exports have moved in close tandem, but they have completely diverged post pandemic. This is because, with India announcing a lot of incentives under the PLI scheme, there has been an exponential jump in manufacturing exports from India, like handset exports that are not a part of IIP basket, for example Foxconn. Separately, the steel production by select companies has undergone locational shift which are not a part of the IIP sample. Nokia’s handset manufacturing facility at Chennai has closed down post 2014. There are many such examples,” argued the paper.

The SBI Ecowrap stated that the correlation between manufacturing exports and IIP growth after the pandemic has been weak. It stated that a new base of IIP – on which the government is currently working – will remove these glitches and make a fair representation. 

It argued that Apple’s recent decision to shift part of production of its flagship iPhone 14 model for worldwide shipping bears testimony to further optimism. This move by Apple should open the floodgates for other major conglomerates to follow suit, it added. 

However, expenditure has improved considerably. Private consumption has improved on the back of good urban demand, registering a growth of 25.9 per cent. New project announcements by private sector in June 2022, as per Centre for Monitoring Indian economy (CMIE) data, also indicates healthy momentum. However, rural demand has not responded to robust agriculture output growth. 

“Under alternative model specifications, we are now revising our annual GDP growth for FY23 to 6.8%, a large part of which is a statistical adjustment with growth momentum likely to show an increasing momentum in second half of current fiscal. The downward revision is mostly to do with our Q1GDP estimate that was at 15.7%,” stated the paper.

Also read: India's GDP grows at 13.5% in Q1 FY23