InvestorQ : Do you see any challenges in the advance estimates of GDP put out by the government?
diksha shah made post

Do you see any challenges in the advance estimates of GDP put out by the government?

Dhwani Mehta answered.
2 years ago

Let me break down the GDP for the sake of simplicity. The first two quarters of FY21 saw GDP contraction of -23.9% and -7.3%. This is the official figure that has already been announced by the NSO. Now, if GDP has to improve to -7.7% for the full year, we are roughly looking very marginal change in the GDP in the third and fourth quarters.

The biggest challenge will be the manufacturing sector. The advance estimates pegged manufacturing segment to contract by -9.5%. That is not encouraging but some of the high frequency data points like PMI manufacturing and core sector numbers are giving hints that the manufacturing activity is picking up at a quicker pace.

Between now and February, a lot would really depend on how the government attempts to stimulate demand in the Union Budget 2021 through fiscal measures. Tax cuts could be a two-way game but infrastructure spending is what the government may focus on. That is surely going to give a boost to manufacturing, although consumer demand holds the key.

But the big billion dollar worry is the per capita GDP. India compares awfully on per capita income even when you look at other emerging markets in Latin America, Asia and Eastern Europe. The advance estimates have pegged GDP per capita to contract by -8% to -10%. That will be an outcome of the combination of a fall in GDP and a rise in population.

In short, GDP per capita may have inched close to $2000 but now it could see a sharp reversal. If that happens, it means that any rating upgrades are ruled out in the foreseeable future. India can just forget about that and it is a major challenge. The second challenge is that weak per capita income could also put pressure on the INR. That is a worry too.