India's growth statistics, it appears, are increasingly becoming a number salad.
The Central Statistics Office's (CSO) latest data dispatch gives inconclusive evidence on the most urgent question: Has slowdown bottomed out?
Some key details are hazy, and even though the government woodenly points to recovery signs, a simple number crunching tells us that we may be close to touching the bottom.
Consider the data. Going by the FY20 growth estimate of 5 per cent and taking available data for Q1, Q2 and Q3, the current quarter growth is expected to be 4.6 per cent. This is 10 bps lower than Q3, which saw growth at 4.7 per cent.
Last month, the CSO lowered FY19 growth to 6.1 per cent from 6.8 projected earlier. But curiously, the statistics body re-based data for the first quarter of the current fiscal and not the full fiscal, which leads us to two takeaways.
One, FY20 numbers are subject to further revision. Two, it means slowdown is still bottoming out with the last two quarters raking in sub-5 per cent growth. If slowdown has indeed touched the bottom, as the government claims, shouldn't Q4 data see an upside over the previous quarter?
Moreover, with the coronavirus mounting fresh concerns, threatening to disrupt the world economy, the much-awaited recovery in the first quarter of next fiscal could as well be flat or weak.
"The GDP numbers based purely on data, now in fact suggest that the slowdown may have been front-loaded into FY21," confirmed Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
The Economic Survey pegged FY21 growth at 6-6.5 per cent, which means Q1 needs to punch above 5.5 per cent growth. And like we have seen in FY20, growth will likely be a one-trick pony led by government spending as the Centre tends to frontload expenditure in the first two quarters. The question then is how much can it support growth as the other key growth levers including consumption and investment are racing to the bottom.
Investment in particular is contracting like never before and is likely to touch a 17-year-low. "For the year, gross fixed capital formation growth rate has turned negative to 0.6 per cent, that is a 17-year-low. This is indeed worrying," said Ghosh.
Similarly, consumption too is projected to grow at 5.3 per cent in FY20 -- the lowest since FY13.
Some believe Q4 growth itself could be tough given the compression in government expenditure. For instance, real GVA excluding public administration is lower at 3.7 per cent vs headline GVA of 4.5 per cent. Total expenditure by the Centre and states in the December quarter grew 13 per cent yoy, below 22 per cent in the September quarter.
"Given the fiscal delicate fiscal act by the Centre and reduced transfers and GST compensation to states this year, government expenditure which has been supporting growth should further wean in the March quarter with the central government spending in January already down 6 per cent yoy," said Sreejith Balasubramanian, Economist, IDFC AMC.
The softening in economic activity is likely to continue despite a slight improvement in Q3 and while inventory restocking and base effects could make some of the numbers appear better, a meaningful recovery could be further away as both demand and credit supply continue to remain weak.
"We remain cautious in the data ahead as the global supply chain disruptions and weakening demand amid spread of the epidemic could pose a downside risk to India's growth," said Upasna Bharadwaj, Senior Economist, Kotak Mahindra Bank.
India's direct trade linkage to China and Hong Kong is at 9 per cent of total exports and 17 per cent of total imports. Supply chain disruptions and lower external demand would add to domestic issues and continued risk-off capital outflows could put pressure on EM currencies, although the RBI has been shoring up forex reserves. However, expectations of global monetary policy easing have already started rising amid the uncertainty, which still looms large.