In the intricate landscape of economic forecasting, the recent projection of a 7.3% GDP growth for the fiscal year 2024 by the National Statistical Office (NSO) has stirred conversations among economists. Behind this seemingly optimistic figure lies a critical factor – the Rs 2.94 trillion contribution of a mysterious entity known as “discrepancy.”
Understanding the Puzzle of Discrepancy:
At the heart of this projection lies the concept of “discrepancy.” This term is a statistical input in the expenditure side of GDP calculation, serving to reconcile the disparities between the gross-value-added (GVA) method and the demand side. In simpler terms, it’s the tool used to bridge the gap between what the economy produces and what it spends.
The First Glimpse of Numbers:
The first advance estimates released by the NSO reveal a positive discrepancy of Rs 2.94 trillion. This suggests that the GDP calculated through the GVA method surpasses the expenditure side by this amount. Notably, this positive discrepancy has been attributed to a 12.5% increase in net taxes on products, propelling the GDP growth to 7.3%.
Diving into the FY23 Comparison:
To put this into perspective, in the preceding fiscal year (FY23), the scenario was quite different. The discrepancy was negative at Rs 3.81 trillion. After adjusting for this, the GDP growth for FY24 is marked down to 3.2%, significantly lower than the initially projected 7.3%.
Unpacking the Drivers:
The key driver behind this discrepancy in FY24 is the substantial growth in net taxes on products, soaring by 12.5%. This contrasts with the 10.1% growth witnessed in FY23. The surge in these taxes has, in turn, inflated the GDP growth projection.
The High-Frequency Indicators Conundrum:
As discussions unfold, concerns are raised about the reliability of these projections. High-frequency indicators have slowed down in the second half of the fiscal year, leading experts to question the accuracy of the initial estimates. Sakshi Gupta, a principal economist at HDFC Bank, suggests that since the first estimates are based on data from the initial 8-10 months, the growth might be overestimated.
The Uncertain Allocations:
Former Chief Statistician Pronab Sen sheds light on the uncertainty surrounding the allocation of discrepancy. He points out that there is no predefined rule for distributing this discrepancy among different components. The actual impact on growth is only known once the data is made public.
Forecasting Challenges:
The projected GDP growth of 7.3% for FY24 stands 10 basis points higher than the previous fiscal year. However, the GVA growth is expected to be 10 basis points lower at 6.9%. Gaura Sen Gupta from IDFC FIRST Bank emphasizes that more than 50% of the overall GDP growth for FY24 is attributed to discrepancies. This leads to the inevitable conclusion that once the discrepancy is distributed among various expenditure components, the GDP growth might witness a downturn.
The Road Ahead:
In the complex world of economic forecasting, the story is never as straightforward as the numbers suggest. The interplay of factors like discrepancy, high-frequency indicators, and allocation mechanisms adds layers of complexity to understanding and predicting GDP growth.
As we await the release of provisional estimates and a clearer picture of the expenditure side, economists remain cautious about the actual trajectory of India’s economic growth in FY24. The intricate dance of numbers continues, reminding us that decoding the economic puzzle requires a keen eye and a nuanced understanding of the factors at play.