The Chief Economic Adviser, V Anantha Nageswaran, stated on Thursday that the Indian economy is likely to see a rise in its GDP estimates for the current fiscal year, 2022-23, as high-frequency indicators, such as passenger vehicle sales, show signs of recovery. Nageswaran also challenged the common perception of using the letter K to denote economic recovery for urban and rural areas, saying that this was “somewhat wrong” and that rural recovery is not negative, but rather urban recovery is proceeding at a faster pace than rural recovery.
Nageswaran expressed his belief that the high-frequency indicators are recovering at a rapid pace, indicating that there is a good chance that when the current year’s data is released next year, the GDP estimates will be revised upward. The National Statistical Office (NSO) released the second advance estimate for the fiscal year 2022-23 on Tuesday, maintaining the full-year GDP growth estimate at 7%, the same as the first estimate released in January. However, the October-December GDP growth rate was 4.4%, a three-quarter low primarily due to a negative manufacturing print and slowing consumption momentum.
The NSO also released revised GDP growth data for the past three years – 2019-20, 2020-21, and 2021-22 – along with the second advance estimates of GDP for 2022-23. The growth rate for 2021-22 has been revised up by 40 basis points to 9.1% from 8.7%, while the GDP for 2020-21 (the year of the pandemic) has been revised upward to (-) 5.8% from (-) 6.6%. Additionally, the growth rate for 2019-20 has been revised upward to 3.9% from 3.7%.
When asked about the varying rates of recovery in urban and rural areas, Nageswaran explained that one segment has a more positive slope than the other, but both are positive. He stated that rural recovery is happening, and it is not negative, but the pace of urban recovery is faster than rural recovery. Real interest rates, according to Nageswaran, are not very high at the moment, and there is pent-up demand in certain sectors due to a potential growth rate of 6-6.5% as per some estimates.
Nageswaran responded to a query regarding high rural inflation, stating that it does not take into account the subsidized distribution of food grains and may not reflect the true cost of living. He pointed out that many other countries have taken into consideration the fact that their governments have provided relief to specific segments of the population and have weighted the average pricing. He said that ultimately, if a Consumer Price Index (CPI) is supposed to capture the cost of living, it should include both subsidized and non-subsidized prices. Therefore, if a rural population faces a higher inflation rate, it does not take into account the fact that the bulk of the world population may be getting their essential food grains at zero cost.
The Chief Economic Adviser is optimistic about the Indian economy’s future and anticipates upward GDP revisions for the current fiscal year. He also challenges the notion that rural recovery is negative and asserts that urban recovery is proceeding at a faster pace. Additionally, he highlights the potential for pent-up demand in certain sectors and argues that rural inflation rates do not reflect the true cost of living.
