Rebound in the Air, Listlessness on the Ground

CLUTCHING AT  STATISTICAL STRAW? File photo of Finance Minister Arun Jaitley drinking coconut water during a photo exhibition highlighting the completion of  one year by the NDA Government. PTI Photo.

CLUTCHING AT STATISTICAL STRAW? File photo of Finance Minister Arun Jaitley drinking coconut water during a photo exhibition highlighting the completion of one year by the NDA Government. PTI Photo.

Official statistics seem to be adding to the world of make believe that the NDA government is building for itself even as economic agents, producers and consumers, experience something entirely different on the ground.

The Central Statistical Organisation yesterday confirmed that the economy grew at 7.3% in 2014-15, as per the new GDP methodology which investors in India and abroad remain deeply skeptical about. An IMF team is currently working with India’s statisticians to identify possible gaps in the new methodological miracle produced by the CSO.

As per latest CSO data, there is a “manufacturing rebound” in the quarter of January to March, 2015, with industry growing at 4.8%. Compare this with the fact that India’s leading companies have had the worst results in eight years for the same quarter. The combined net profits of 42 companies in the benchmark NIFTY index have halved during Jan-March 2015. According to analysts, this is the worst quarter for companies since September 2008, when the financial meltdown on Wall Street led to an all round decline in the profits and revenue of most manufacturing companies in India.

One of the more respected Indian economists, Shankar Acharya, who had worked as Chief Economic Advisor in the finance ministry under both Congress and BJP-led governments through the 1990s and early 2000s, has restored sanity to the GDP debate.  “It is these last two years, 2013-14 and 2014-15, averaging  7% GDP growth according to the new base, that do not square with all the other available indicators,” he has recently written in the Business Standard: “Almost no industrial expansion, sluggish growth in tax revenues, slowing bank credit expansion, sluggish growth in corporate earnings, slowing investment and export growth and a weak employment market.”

He goes on to say the nearly 7% growth rebound in 2013-14 is particularly puzzling as it was a year when India faced a mini balance of payment crises (with significant capital outflows) and a 300 basis points hike in policy interest rate to stem capital flight. “To my mind nowhere else have such unpleasant events spurred significant  economic recovery”, he wrote.

Logically, if the revised GDP growth figure of 6.9% in 2013-14 cannot be easily understood, this casts doubts about the so- called growth rebound of 7.3% that the CSO has now declared for 2014-15. Or for that matter the projected further growth recovery of 8% to 8.5% during 2015-16.

It seems 7% has become the new 5%. Official statistics may give you a GDP growth of 7%-plus but the real experience on the ground is that of 5%-plus. Ask any producer or consumer on the ground and she will tell you the real feel on the ground is that of 5% GDP growth in 2014-15. It is the worst year for the farm economy, which has grown at virtually zero. Well over 50% of consumer demand comes from the rural sector linked inextricably to the farm economy.

The problem is there seems to be a conspiracy of silence among policymakers over the jarring mismatch between official statistics and experience on the ground.

Initially the RBI Governor, Raghuram Rajan, and the Chief Economic Advisor, Arvind Subramanium,  did express public skepticism but later quietened down. The Prime Minister and finance minister continue to tom-tom the claim that India has overtaken China’s GDP growth. This exercise of trying to manufacture a feel-good factor may work up to a point. The NDA is lucky this is happening at the beginning of its tenure and not towards the end, whose disastrous consequences were seen in 2004.

It’s early days yet. The government would do well to go in for a reality check on its official statistics and, as Shankar Acharya puts it, “restore credibility to India’s national income and growth estimates.”

Categories: Economy

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