Sometimes back, questions were raised over the credibility of China's GDP estimates. Not surprising, you will say. Even at that time I had said that it will be interesting to find out how authentic are India's GDP figures.
Well, I wasn't wrong.
The Economic Times (Sept 1, 2010) has pointed to certain discrepancies in the GDP data. Accordingly, the GDP data put out by the government have raised some serious credibility issues. Now, these are the gaps:
Divergence in Growth Numbers:
From the supply side, or as measured from output in agriculture industry and services, GDP grew at 8.8 per cent. But demand side growth, based on private and govt expenditure, investments and net exports, was 3.7 percent. The difference between the two is net direct taxes. Data suggests, taxes have fallen while subsidies have risen. This is at odds with improvement in govt finances.
Expenditure Numbers show a Dismal Picture
Private consumption growth has slumped to 0.3 per cent in Q1 from 2.6 per cent in Q4 of last fiscal. Growth in investments has plummeted to 3.7 per cent. Government consumption growth is negative. The data is at odds with strong anecdotal evidence of consumer demand. Car sales were up over 35 per cent in July.
I am sure there are a lot many people like me who cannot make a head and tail of what has been written above. Here is what Mridul Sagger, Chief Economist, Kotak Securities, has been quoted as saying: "This would erode the credibility of Indian statistical system, hitherto acknowledged as superior to that of China. GDP numbers for latter are always questioned, but that would pale in comparison to our Q1 numbers."
The Economic Times says: The robust 8.8 per cent growth figures was not corroborated by the 'demand side' of the equation based on transactions in the market place. The demand number -- calculated from private and government consumption, investment and net exports -- showed that the economy grew as low as 3.7 per cent during the first quarter of the current year. On an average, the divergence is well below 0.5 per cent though on a few occasions it has touched 2-3 per cent.
Within 32 hours, the government made some correction. It has brought down the GDP to 8.5 per cent. But I am still not sure whether even that figure is a correct estimate. Let me explain why.
1. Growth is manufacturing has slowed down. The share of fixed capital formation in the GDP has slipped below 30 per cent.
2. Exports have slowed down, grew by 13.2 per cent in July as compared to 30 per cent in June.
3. Industrial output growth in June has also moderated. Other signs of slowing growth are the low cargo handling at major ports, and low freight movement by railways.
If Industry, manufacturing, exports, and agriculture (the figures are mere variation, and not reflective of growth) are not looking up, I wonder how can we say that the economy grew by 8.5 per cent. It is simply a fictitious figure.
If growth has to be measured in terms of the number of cars sold or the number of mobile phones sold, I think the entire system of calculating GDP needs to be revamped. A better way to compute growth would be to know how many more people have got employment, and how many more hungry mouths have been fed.
Moreover, treating annual variation in farm output (I don't know how you can measure agriculture growth every quarter??) as growth is grossly misleading. If in 2008-09, for instance, the production is low because of drought/floods, and therefore even if India achieves its normal projections in foodgrain output in 2009-2010, it cannot be construed as growth. This is merely an annual variation in production figures.
Economist must measure agriculture growth looking at the performance in production spread over at least 5 years. Anything less than that is simply not correct.