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The link between US bond yields, Indian stock markets, GDP and GVA gro...

  Mar 10, 2021

The link between US bond yields, Indian stock markets, GDP and GVA growth rates

Q. What is the news?

Q. What is the issue?

Q. What happens to this bond’s yield?

Q. What connection does it have with GDP and GVA?

This also has connection to the other big story of the past week — the release of the so-called Second Revised Estimates (SAE) of national income for the current financial year by the Ministry of Statistics and Programme Implementation (MoSPI).

In the First Advance Estimates, released on January 7, the government expected India’s GDP to contract by 7.7% in the current financial year. The SAE released on February 26 peg this contraction at 8%.

This cannot be great news for the economy.

When the First Advance Estimates were released, a contraction by 7.7% meant that India’s per capita GDP, per capita private consumption and the level of investments in the economy — all were expected to fall to levels last seen in 2016-17 or earlier.

At minus 8%, most of these key metrics have either worsened or, in case they have improved, they haven’t done so substantially enough. For instance, according to the FAE, the per capita GDP in 2020-21 was estimated to be Rs 99,155. According to the SAE, this number has fallen further to Rs 98,928 — that’s a fall of Rs 227 per head across each of 1.36 billion Indians.

However, there was a silver lining in the national income data — the growth rate of Gross Value Added (GVA).

Typically, it makes sense to look at the GDP, which maps national income from the point of view of what was the total amount of money spent in an economy, for comparing the full-year performance of an economy.

But there is another way to look at the economy’s performance — that is to look at Gross Value Added (GVA). Simply put, the GVA captures the value added (in money terms) by economic agents in each sector of the economy.

The GVA is more relevant when one tries to map how the domestic economy is changing from one quarter to another. In fact, during the year, it is GVA data that is made available first — not the GDP. The GDP is arrived at by taking the GVA number, adding all the taxes earned by the government and subtracting all the subsidies provided by the government.

This implies that for the same level of GVA in an economy, the GDP could alter just because the government earned more money from its taxes or spent more on subsidies.

In other words, if one wants to know the true state of India’s economic revival, one should focus on the GVA. The table alongside provides both GVA and GDP revisions between the FAE and the SAE.

Growth Rate ofFirst Advance Estimates (FAE) in JanuarySecond Advance Estimate (SAE) in February
Total GDP—7.7%—8.0%
Total GVA—7.2%—6.5%
Agriculture GVA3.40%3.00%
Industry GVA—8.5%—7.4%
Services GVA—9.2%—8.4%

Table: GVA growth rate points to economic recovery (Source: MoSPI)