GDP estimates suggest Nirmala Sitharaman has a difficult year ahead

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RBI) projection of 8%. Several economists were also expecting higher growth. Meanwhile, a few economists pointed out that statistical peculiarities may have inflated NSO’s growth estimates.

Quarterly estimates are given low weightage in serious analyses. SnapView has explained previously that these estimates are preliminary, and prepared using sparse, rudimentary data. As the year progresses and better-quality information becomes available, the NSO revises them on a schedule.

But at times, even quarterly estimates contain important messages for policymakers. The Q1 estimates have quite a few. The economy remains in recovery mode, with Q1 GDP 13.8% higher than the pre-pandemic level.

However, the momentum may not sustain as the year progresses. The government’s capex push over the past two years is yet to show up meaningfully in investments or consumption growth, as can be seen from the structure of demand reflecting in the estimates: The shares of consumption and government spending in GDP fell, while that of capital formation didn’t budge. Private consumption expenditure grew 6%, slower than overall GDP growth.

Capital formation increased about 8%, faster than the rate at which GDP grew, but slower than its average growth rate during the preceding four quarters. High inflation – due to, among other reasons, the RBI’s failure to act in time and successive food-supply shocks this year – appears to have been a drag on consumption demand in Q1. If monsoon rains remain deficient, there will be new risks for inflation and growth.