GSDP numbers may undergo revision

In West Bengal, Uttar Pradesh, Madhya Pradesh, Karnataka and Tamil Nadu, there is significant gap between SBI Ecowrap estimates and revised estimates provided by these states for FY21

Mumbai: If a study by SBI Ecowrap, the research wing of the country's largest lender State Bank of India, is to be believed then state GSDP numbers may undergo revision.

The finding comes at a time when almost all major states have announced their 'State Budget 2021-22'.

At all India level, NSO has estimated 8.0 per cent contraction in real terms and 3.8 per cent contraction in nominal terms for FY21. States have also put forward their estimates for FY21.

'To validate the states' GSDP estimates for FY21, we have created our own estimates based on simulation of last few years states GSDP data-based on the share of states in GDP of India', the report says.

In fact, the study has got two observations to ponder over.

"First, for some states we have found that there is significant gap between our estimates and revised estimates provided by these states for FY21. The prominent states where there is difference include West Bengal, Uttar Pradesh, Madhya Pradesh, Karnataka and Tamil Nadu. On the other hand, states like Rajasthan, Jharkhand, Odisha and Kerala are representing more realistic picture of their economies," Soumya Kanti Ghosh, group chief economic advisor to SBI said.

Second, if we take states' GSDP estimates as given (as states are more informative about their economic situations) then the all-India GDP contraction would be significantly lower than what the NSO has projected. If we go ahead and add the value of GDP estimated as per our simulation to the remaining states, for which we do not have the GSDP numbers this takes up India's FY21 GDP to Rs 209.5 lakh crore, which means that India's GDP will actually expand by an approximate 3 per cent in nominal terms in FY21, as against the postulated 3.8 per cent per cent contraction projected by NSO, he added.

According to Ghosh, if we compare the percentage share generated by these estimates vis-à-vis our simulation, Karnataka, Madhya Pradesh, Tamil Nadu, Uttar Pradesh and West Bengal would have all gained 0.5 per cent or more individually in FY21 GDP pie.

Interestingly, even though these states are showing a rosy picture on GSDP numbers, the same is not reflected in tax collections. Karnataka, Madhya Pradesh, Uttar Pradesh have actually witnessed a revenue receipts de-growth from FY20 to FY21. Meanwhile West Bengal's revenue receipts growth was just 1 per cent. There are nuances to what drives GDP growth. In ordinary circumstance, growth in GDP or income should be visible with a concomitant increase in revenue receipts.

Of course, the state's own tax revenue can show with more clarity what is happening as revenue receipts also include share in central taxes. However, SGST figures show that Karnataka, Madhya Pradesh, Uttar Pradesh have witnessed SGST decline. Meanwhile for state VAT and sales tax, which is majorly imposed on crude oil products, despite the increase in duties, states are seeing a decline of 14.7 per cent from the budgeted figures, due to lower crude prices and reduced consumption in the initial months of FY21.

The bottom-line of all these is that states' GSDP actual estimates for FY21 might see a 7 per cent reduction if the numbers follow the MOSPI estimates for overall GDP. However, there is a distinct possibility of MOSPI revising the overall GDP estimates upwards, which means that states would not see this sharp downward reduction. But, it is for sure that FY21 actuals for certain States would not be this high and the next year budget will show downward revision in FY21 GSDP estimates.