How much will new IIP, WPI series impact India's GDP?

Government of India is set to announce country's GDP (Gross Domestic Product) numbers on Wednesday May 31, 2017. 

Analysts and industry experts believe that the new series of India's factory output data or Index of Industrial Production (IIP) would mean that the GDP numbers could be significantly higher than the earlier quarters. 

State Bank of India's (SBI) chief economic adviser, Soumya Kanti Ghosh said, "We expect 7.2% GDP (GVA: 6.8%) growth for Q4 FY17."

Moreoever, the new series for IIP and WPI (Wholesale Price Index) or wholesale inflation, will mean that an upward revision in all the preceding three quarters will also be seen. The Q1, Q2 and Q3 GDP numbers are expected to be revised by 40 bps, 60 bps and 40 bps, respectively to 7.6%, 8.0% and 7.4%, Ghosh said. 

Not only this, India's GDP from financial year 2014 is set for an upward revision because of the new IIP and WPI series. Ghosh further said, "We expect FY14 GDP growth to be revised from 6.5% to 7.3% while FY16 GDP is expected to be revised from 7.9% to 8.3% because of the new IIP and GDP series. FY17 GDP growth is expected to be revised from 7.1% to 7.6%."

Everyone, however, is not as upbeat as SBI. 

Nikhil Gupta and Madhurima Chowdhury of Motilal Oswal, in a report dated May 29, 2017 said, "Irrespective of the new IIP (index of industrial production) series (2011-12 base), which is a key ingredient in quarterly GDP estimates and shows much higher growth than the old IIP series (2004-05 base), we continue believing that real GVA/GDP growth (2011-12 base) will likely be 6% YoY in 4QFY17, much lower than in previous quarters."

Although the duo agreed with SBI's Ghosh that the GDP numbers of past two years will see a revision. They said, "With the new IIP series (2011-12 base), real GDP growth for past two years is likely to see a revision."

They further said, "We believe that real GVA (Gross Value Added) for the manufacturing sector would be revised up from 7.9% to 9.2% for FY17. It implies that headline real GVA growth could be revised up from previously estimated 6.4% to 6.8% in FY17 (Exhibit 5). In terms of real GDP, it implies that real GDP growth will be revised from 7.9% to 8% for FY16 and likely to be revised upward by almost 40bp for FY17 to 7.2%."

GDP for Q4FY17? 

Gupta and Chowdhury of Motilal Oswal believe that India's GDP numbers for the fourth quarter ended March 31, 2017 will be lower than past three quarters, at 6%. 

The reason being, "We continue believing that economic activity growth has decelerated sharply in the final quarter of FY17," adding, "while we estimated real GVA for the manufacturing sector to grow 7.5% earlier, we have revised it to 8%. Along with an upward revision in mining activities, we estimate real GVA growth at 6% YoY in 4QFY17, as against the previous estimate of 5.6%. It implies real GDP growth of 6.2% – much lower than the average of 7.5% in the first three quarters of FY17."

SBI's Ghosh, however is of a counter view. He said, "We also expect 7.2% GDP (GVA: 6.8%) growth for Q4 FY17 and also upward revision in all the preceding three quarters."