If financial years had a tombstone, FY20’s would read “here lies irony”. Provisional GDP figures for FY20 announced
If financial years had a tombstone, FY20’s would read “here lies irony”. Provisional GDP figures for FY20 announced on Monday place GDP contraction at 0.38 percent. Those biting their nails in nervous anticipation since the announcement of grim forecasts of negative 1.3 – 1.5 percent contraction by IMF and WB should heave a sigh of relief. Only if the numbers are not wide off the mark; and that is a big if.
The National Accounts Committee press release clarifies that full year estimates have been adjusted for the impact of Covid-19 in the final fiscal quarter. What is fuelling this brimming optimism at P-block when gloom is the order of the day across the globe?
At a time when both industrial and services sectors have delivered a rare contraction, agriculture leapt forward by 2.67 percent, raising its sectoral share to 19.3 percent of GDP. In fact, all segments barring cotton ginning made positive gains. This is surprising, considering agri-GDP often witnesses adverse volatility even in good days.
Consider that in FY06 (base year) when economic growth hovered over 5.6 percent, four out of six agri-sub sectors saw negative performance. Since then, agri’s fate - and especially that of cropping segment - has not been quite dissimilar, with the past 5 years being particularly chequered when sectoral growth averaged under two percent per annum. Performance of maize crop is a conspicuous exception to this rule, for more: read: ‘Mantras are nice, but common sense is nicer’ published on July 17, 2019.
This raises several caveats. On one hand, while estimate of services and industrial performance may very well see further downward revisions, farming estimates are likely more resilient. For one, farm output – especially – that of crops – is slow to change momentum and is instead far more vulnerable to environmental risks such as water availability, heat waves, or pest diseases, the impact of which is usually known by this time of the year. Two, because of high degree of government intervention, the sector is by far the most insulated from demand side volatility and price risk that is the obvious outcome of contraction caused by the raging epidemic.
And it is not as if sectoral output has not been adjusted for demand side risks where necessary. Livestock, that contributes lion’s share – 61 percent - is expected to underperform owing to demand contraction for dairy and poultry products, according to the NAC presser.
Does that mean the sectoral estimates are robust? Herein lies the irony. Together with forestry and fishing, livestock has historically shown far more stability in long-term growth rate than the cropping segments. Yet, it is no secret that the output for livestock products is a pure statistical extrapolation, based on inter-census growth rate that took place last in FY06. In the past, this space has frequently highlighted that the livestock GDP may indeed be witnessing a long-term contraction, based on census conducted by Punjab’s livestock department, and crude estimates by Sindh’s. (Read ‘Falling Livestock GDP’ by BR Research, published on June 17, 2020)
Similarly, forest and fishery output – although a puny four percent of sectoral GDP – cannot boast of robust bases either; so much so that the Statistical Supplement to Economic Survey shows nil data under ‘Total Forest Production’ since FY13. Likewise, an ex-bureaucrat at Maritime Affairs ministry shared that the country has not conducted any oceanic survey of the ‘state of fishery’ in over three decades. It should come as no surprise then that the most-consistent performers within agriculture are also the sketchiest, to put it mildly.
And then there is agriculture’s integration down the value chain. In his latest title ‘Agenda for Reforms’, Dr. Hafiz Pasha notes that 59 percent of the value-added in the manufacturing is agro-based. But it does not end there. Share of agro-based wholesale and retail trade segment stands at 53 percent; transport and communications at 48 percent; and banking and insurance at 15 percent. (Read ‘Agrinomics needs stakeholders, not consumers, published by BR Research on April 11, 2019).
Yet, despite its significant forward linkages, it appears that agri-growth spurt could not stop an unprecedented contraction in the services economy. This is not to dispute the shrinking of services sector in the aftermath of a global pandemic, but quite the opposite. Is the agricultural GDP really so robust to wither the storm on its own? If wishes were horses, or just about any other livestock.