Economists root for gross value added over GDP for clarity on growth

Bengaluru: The official data may have overstated India’s economic growth in the October-December (Q3FY24) quarter.

On Thursday, the National Statistical Office said that India’s GDP grew by 8.4 per cent in Q3, blowing past estimates. However, the consensus among economists is that this was primarily on the back of strong net tax collections and controlling of expenditure on subsidies by the government, something which could dissipate in the coming quarters.

The view is that gross value added (GVA), which grew at 6.5 per cent in the quarter, is a much better indicator of the economy’s actual growth.

“The better-than-expected GDP growth was primarily driven by strong growth in net taxes and gross fixed capital formation. The strong government spending in capex in the earlier quarters is probably crowding in private investments,” Rumki Majumdar, Economist at Deloitte India, told DH.

“At the same time, the divergence between GDP and GVA reflect the expenditure side of the economy (GDP) is likely growing stronger than the production side (GVA). This divergence could point to demand and supply side mismatch and may have implications on how inflation may move in the upcoming quarters,” Majumdar said.

To Neelkanth Mishra, Chief Economist at Axis Bank, this is the biggest divergence between GDP and GVA in ten years.

“This wide gap (between GDP and GVA) followed a surge in the growth of net indirect taxes to a six-quarter high of 32%, which is unlikely to be sustainable. In our view, it may be more appropriate to look at the trend in the GVA growth to understand the underlying momentum of economic activity,” said Aditi Nayar, Chief Economist at ICRA Ltd.

GDP consists of demand-side components like private final consumption expenditure (proxy for household consumption), government final consumption expenditure, gross fixed capital formation (proxy for infrastructure creation), imports, exports etc. GVA consists of supply-side sectoral economic activity like agriculture, mining, manufacturing, construction, financial, real estate and professional services and other such activities.

As per the data released on Thursday, private consumption and government expenditure both weakened when compared with the October-December quarter of FY23. Thus, the primary driver was infrastructure creation.

Rajani SInha, Chief Economist at CareEdge said that the breakup of GVA was very much on expected lines with agriculture growth showing marginal contraction, given the poor monsoon.  

“Consumption growth has remained feeble. Going forward, the most critical aspect to watch out for will be a broad-based improvement in consumption growth. The other critical aspect would be a meaningful improvement in private investment. Overall robust GDP growth will be sustainable only when there is a meaningful improvement in consumption and private investment,” Sinha said.