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GVA grew 5.7 per cent.

estimate shows that GVA grew 5.7 per cent. But with IIP growing at 3.1 per cent over the same period, the numbers simply don’t add up.

The biggest disconnect lies in the second quarter numbers. According to an analysis of over 1,000 com­panies, GVA contracted by 0-8 per cent in the second quarter. This contraction is in large part because of steel companies reporting losses and Tata motors registering a loss because of a charge of ? 2,493 crores on account of the vehicles damaged at the Tianjin Port explosion.

Under the new series, GVA at current prices grew 4 per cent in the second quarter. While it is possible that part of the difference is offset due to higher growth of IIP, the index grew at 4-8 per cent in the second quarter, even after accounting for this it is difficult to reconcile the two estimates.

It is to be worth mentioning here that the top 500 companies in India account for roughly 75 per cent of overall corporate performance. It is of no secret now that the performance of these top companies is sluggish It is difficult to believe that if these companies are doing badly then the remaining 495,000 that CSO tracks are doing better. While greater clarity over how exactly IIP and corporate data are incorporated to arrive at the quarterly estimates is desirable, the fundamental question is whether the trend of muted volume growth and high value added is sustainable ? Is it really possible for value added to continue growing at 9 plus per cent, with volumes barely growing ? While compensation to emplo­yees and depreciation will continue to be positive, profit growth is likely to suffer with commodity prices unlikely to decline further. Thus, in the absence of a sustained pick up in volumes, GVA is likely to be muted going forward.

What is equally worrying is that despite CSO data showing a pickup in GVA and a decline in the cost of capital, investments aren’t really taking off. According to the new GDP series, gross fixed capital formation declined to an alarming 27-8 per cent in the third quarter, from 30.9 per cent in the first quarter.

The capital goods component of IIP, which indicates investment demand in the economy, contracted 9-96 per cent in the third quarter, giving economists good reasons to fret. This trend could be interpreted to mean that companies expect profit growth to decline in the future which suggests that concerns over lack of demand continue to weigh heavily on them. Rather than giving more clarity about the state of the economy, the latest GDP estimates have raised more questions about the sustainability of this ‘recovery’.

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