The GDP data released last week is important not just because it gives us new insight into the pandemic and post-pandemic years, but also because of what it says about how India–and its leadership–navigated the economic fallout in that difficult period.
With the benefit of hindsight and more data, it turns out that Finance Minister Nirmala Sitharaman has indeed been very competent in how she has steered the Indian economy through the turbulence of the pandemic and beyond.
Her critics would do well to be fair and take note.
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But first understand data cycle…
Typically, the cycle of GDP data involves six stages. The first advance estimates for a financial year are released in January of that year and incorporate about nine months of data (April-December). The second advance estimates are released in February and add one more month to the data being examined.
At the end of the financial year, provisional estimates are released based on data for the entire year. As the title suggests, this data is still provisional and doesn’t include deeper elements like how the informal sector did, or other key data sets such as the Annual Survey of Industries, which provides granular information on individual sectors.
A year down the line, the government releases the ‘first revised estimates’, which incorporates wider and more accurate data. And two years later, the ‘second revised estimates’. It’s only after three years that we get the final ‘third revised estimates’.
If you go to the bottom of the press release issued by the Ministry of Statistics and Programme Implementation (MoSPI) on the GDP data, you’ll find the various additional sources of information that have been used to arrive at each year’s revised estimates.
This is a normal cycle followed every year. However, the impact of the pandemic on the economy has meant that the revisions made to the data for 2020-21 and 2021-22, in particular, are even more significant than usual.
The years 2020-21 and 2021-22 featured the nation-wide lockdown and sporadic regional lockdowns. These severely curtailed the ability of the Ministry of Statistics and Programme Implementation to collect data during those years. So, for those two years, the word ‘provisional’ took on a much heavier emphasis than in normal years.
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…then what it says
Before going into what the revised data shows, I should mention that I was part of Finance Minister Nirmala Sitharaman’s team from January 2020 to August 2022. So to prevent any allegations of partiality, this analysis is only going to focus on the dry GDP data put out by the government in the public domain, with any analysis limited to just those numbers.
The second revised estimates for 2020-21 show that the contraction in India’s GDP was less severe than initially thought. Where the provisional estimates for the year pegged the contraction at 7.3 per cent, and the first revised estimates pegged it at 6.6 per cent, the second revised estimates have put the contraction for the pandemic-impacted year at an even milder 5.8 per cent.
It is unlikely that this revision was made for the first half of the year, when the nation-wide lockdown was in effect. What this implies is that, once the lockdown was eased, the recovery in economic activity was faster than we initially thought.
While a part of this was due to the interplay of pent-up demand and supply catching up, it is also a strong positive statement on the efficacy of the government’s policies to mitigate the initial disruption. Clearly, businesses were in a position to jump back into action, while those people who needed aid, received enough to ensure consumption didn’t sag too badly.
For the next year, that is FY22, the first revised estimates pegged India’s GDP growth at 9.1 per cent, up from the 8.7 per cent in the provisional estimates. This, too, is very significant. Typically, all other things remaining the same, a revision of a base year upwards means growth in the subsequent year comes down.
In such a scenario, the upward revision in growth for 2020-21 should have meant that 2021-22 growth would be revised downwards. But it was nevertheless revised upwards. This means that the bounce-back from the first year of the pandemic was quite a bit stronger than initially thought. Again, a lot of the credit goes to the government.
There are likely to be many who will question the veracity of the government’s data and the revisions that have taken place. However, it is important to be consistent with such criticism.
If the government’s data-gathering, processing, and presenting process is suspect when it comes to GDP numbers, then those same allegations should hold true for other government data as well, such as the report that said India’s unemployment rate was at a 45-year high, or that consumer demand fell for the first time in 40 years. If bad news is accepted unquestioningly, then so should the good news be. Conversely, the bad news should be examined as vigorously as the good news.
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Nirmala Sitharaman’s bad hand
Sitharaman has been dealt a pretty bad hand from the start of her term as finance minister. Within about nine months of assuming charge, she had to deal with a global pandemic that required an unprecedented level of quick thinking and action.
As the effects of Covid-19 on the economy began to wear off by 2022, India was struck by a double-whammy of skyrocketing oil prices because of the Russia-Ukraine war, and a global demand slump because of a near-recessionary developed world.
Sitharaman still has about 15 months left of her term as finance minister, in the likely event that the Cabinet will remain unchanged till the general elections. There is much to still address, such as a continued contraction in the manufacturing sector, a private sector still reluctant to invest, and a seemingly intractable unemployment problem.
However, what is also clear is that her handling of the pandemic and its after-effects has been eminently capable, and should go a long way in silencing her critics. It’s all there in the data.
Views are personal.
(Edited by Anurag Chaubey)