Check out Capital Mind Premium!

Get In-Depth Macroeconomic Analysis, Market Metrics, Proprietary Capital Mind Indexes, a look into the CAPM Portfolio and More Actionable Insights, straight to your Inbox.

Take a 30-day Free Trial!

MOSPI has come out with two announcements recently. First, they revised earlier year GDP figures.

  • 2011-12 GDP real growth was revised the second time, this time UP to 6.7%
  • 2012-13 GDP real growth was revised down to 4.5% (from 5%)

In the second announcement, the advance estimate for 2013-14 GDP is now at 4.9%, versus 4.5% as predicted earlier.

Wool Over Our Eyes?

The first question I had was: Oh, if they could revise 2012-13 GDP now to a lower figure (a 0.5% drop) then why do we bother about what their “estimates” of GDP are today? They can tell us what they want but eventually they’ll revise it down, won’t they?

Secondly, one of the solid reasons why GDP will grow is that the previous year’s GDP has been revised downwards. The “provisional” estimate of 2012-13 GDP was 55.05 lakh cr. in real terms (that is in 2004-05 rupees), which has been revised down to Rs. 54.5 lakh cr.

The current GDP estimate for 2013-14 takes us to 57.5 lakh cr. which is 4.9% greater than…the now lower number for the previous year!

However, if we assume they did not revise the previous year’s numbers (i.e. left it at 55.05 lakh cr), the latest GDP growth figure would have been 4.45%. 4.45% is exactly around what the GDP growth prediction was before all this drama.

Essentially, all of the “higher” GDP growth number of 4.9% is due to the review of the previous year’s GDP.

In fact last year’s “low” is also because of the upward revision of 2011-12 data to 6.7%. This stuff can eat on itself. It’s no wonder that Indian markets haven’t responded, because there is no real change.

Related Posts Plugin for WordPress, Blogger...