<p>The first advance estimates of growth for the current financial year, released by the National Statistical Organisation (NSO), has projected a 7.7% contraction for the economy, on the basis of an expected sharp rebound in the second half. In the first half, the economy had contracted by 15.7%, and to end the year on such a better note would be an achievement. This is also similar to the RBI’s estimate of 7.5% contraction, but sharply varies from some other projections. The World Bank has said the Indian economy would shrink by 9.6%, and the IMF a 10.3% decline. The NSO’s projection is among the most optimistic of all. However, it does not fully tally with the estimates of growth for different sectors of the economy. The manufacturing sector may shrink by 9.4% for the whole year, and trade and tourism and transport by 21.4%. Private consumption expenditure may fall by 9.5%. There are major shrinkages in other areas also. </p>.<p>So, the statement that indicators point to a broad-based resurgence of economic activity is not fully supported by known facts. Some of the assumptions and projections are open to question. There is an estimated increase in government consumption expenditure by 5.8% for the whole year, more spending on administration due to Covid-19 relief work, and higher defence expenditure. Till November, the government was way short of achieving its expenditure targets, and to expect that to be taken to very positive territory may not be realistic. This would call for a huge increase in expenditure. Agriculture, the least affected of all sectors, is expected to grow at a good pace but its contribution to the economy is not very high. Construction might see a good revival. Vaccinations against Covid-19, which will start this week, might give a psychological boost and a push to economic activity. But an overall evaluation of the situation might give the impression that the picture presented by the NSO is too optimistic. </p>.<p>There are other considerations that point to the need for a more conservative outlook. The first advance estimates usually tend to go off the mark. In most years in the past, they were at variance with the final figures. The dataset for the estimates is limited this year, with data available for only the first two quarters, against three quarters in previous years. Corporate and business data are also not fully available as they were given extensions to file returns. A clearer picture might emerge by the time the budget is presented, but even then a full, correct picture for the year may not be available. </p>
<p>The first advance estimates of growth for the current financial year, released by the National Statistical Organisation (NSO), has projected a 7.7% contraction for the economy, on the basis of an expected sharp rebound in the second half. In the first half, the economy had contracted by 15.7%, and to end the year on such a better note would be an achievement. This is also similar to the RBI’s estimate of 7.5% contraction, but sharply varies from some other projections. The World Bank has said the Indian economy would shrink by 9.6%, and the IMF a 10.3% decline. The NSO’s projection is among the most optimistic of all. However, it does not fully tally with the estimates of growth for different sectors of the economy. The manufacturing sector may shrink by 9.4% for the whole year, and trade and tourism and transport by 21.4%. Private consumption expenditure may fall by 9.5%. There are major shrinkages in other areas also. </p>.<p>So, the statement that indicators point to a broad-based resurgence of economic activity is not fully supported by known facts. Some of the assumptions and projections are open to question. There is an estimated increase in government consumption expenditure by 5.8% for the whole year, more spending on administration due to Covid-19 relief work, and higher defence expenditure. Till November, the government was way short of achieving its expenditure targets, and to expect that to be taken to very positive territory may not be realistic. This would call for a huge increase in expenditure. Agriculture, the least affected of all sectors, is expected to grow at a good pace but its contribution to the economy is not very high. Construction might see a good revival. Vaccinations against Covid-19, which will start this week, might give a psychological boost and a push to economic activity. But an overall evaluation of the situation might give the impression that the picture presented by the NSO is too optimistic. </p>.<p>There are other considerations that point to the need for a more conservative outlook. The first advance estimates usually tend to go off the mark. In most years in the past, they were at variance with the final figures. The dataset for the estimates is limited this year, with data available for only the first two quarters, against three quarters in previous years. Corporate and business data are also not fully available as they were given extensions to file returns. A clearer picture might emerge by the time the budget is presented, but even then a full, correct picture for the year may not be available. </p>
