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Monday, 1 June 2015

7.5% Q4 GDP growth may be revised downward on poor corporates numbers............

MUMBAI: The high January-March GDP growth figure of 7.5%, which elevated India to the position of the fastest growing large economy in the world, even ahead of China for the comparable period, may be short-lived as there is a high probability of its downward revision in about three months. This is partly because in the new method to calculate India's GDP, the government captures revenue and profit numbers of about 5 lakh companies registered with the Ministry of corporate affairs (MCA21 list). Compared to this, the earlier practice was to capture data from a sample of about 2,000 companies only from RBI's quarterly survey of industries. 

Although the government is willing to make the GDP estimates much more broad-based, lack of timely disclosure of data by Indian companies — listed as well as unlisted — is making the GDP estimates more prone to large scale revisions, economists said. With corporates reporting dismal numbers for the January-March quarter, they believe India's Q4 GDP will be revised downwards as sharply as in Q3. The Q3 (October -December 2014) estimates were revised sharply lower to 6.6% from 7.5% a quarter down the line, a fall of 90 basis points (100 basis points = 1 percentage point). 

According to Soumya Kanti Ghosh, chief economic advisor, SBI, going by the GDP and gross value added (GVA) and the wide divergence between the two points to a significant moderation in growth in the second half of fiscal 2015. The latest batch of corporate results from the listed space is showing a fall in profitability and also muted volume growth. Now if the listed space shows such a large fall, it is unlikely to be any different with the unlisted space. So in the coming months, when the full data is captured, this can possibly lead to downward revision of GDP growth, Ghosh said. 

In Q4, China's GDP grew at 7% according to World Bank data, while India grew at 7.5%. Now if this growth figure is revised downward as aggressively as in Q3, due to poor corporate results for Q4 that will be disclosed over the next three months, again India would show a sub-7% growth that is much lower than China's. 

For example, on Friday, the day Q4 GDP data was disclosed by the government, three of the largest Indian corporates and sensex constituents__L&T, Sun Pharma and Mahindra & Mahindra__ announced their results. L&T announced a 27% drop in Q4 net profit, while Sun Pharma's net was down 44% and M&M's net fell 39%. It's evident these drop in numbers were not captured by the Q4 GDP but when they are included in the revised estimates, that would impact the GDP growth numbers negatively. 

"The new GDP calculation captures data from MCA21 for the corporate performance, compared to earlier practice from IIP. Since MCA21 is a much larger database, it is hard to believe that most of the companies have already filed their latest quarterly numbers. As current corporate earnings are showing muted performance, hence there is legitimate scope for downward revision of GDP while we get the complete updated data for Q4," said Soumyajit Niyogi, interest rate strategist, SBI DFHI.