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The Central Statistics Office's advance estimates of GDP growth for 2014-2015 have raised doubts about the accuracy of India's economic growth numbers. The estimates project growth of 7.4%, higher than the previous year, but this is inconsistent with most macroeconomic indicators. Industrial production grew only 2.1% in the first three quarters while exports grew just 2.4%. Several sectoral growth projections, such as for finance and public administration, also seem out of touch with reality given slow growth in related metrics like bank credit. With investment rates falling, it is unlikely that growth accelerated further just from efficiency gains. The CSO needs to better explain the statistical patterns behind its estimates to clear up these inconsistencies.
The Central Statistics Office's advance estimates of GDP growth for 2014-2015 have raised doubts about the accuracy of India's economic growth numbers. The estimates project growth of 7.4%, higher than the previous year, but this is inconsistent with most macroeconomic indicators. Industrial production grew only 2.1% in the first three quarters while exports grew just 2.4%. Several sectoral growth projections, such as for finance and public administration, also seem out of touch with reality given slow growth in related metrics like bank credit. With investment rates falling, it is unlikely that growth accelerated further just from efficiency gains. The CSO needs to better explain the statistical patterns behind its estimates to clear up these inconsistencies.
The Central Statistics Office's advance estimates of GDP growth for 2014-2015 have raised doubts about the accuracy of India's economic growth numbers. The estimates project growth of 7.4%, higher than the previous year, but this is inconsistent with most macroeconomic indicators. Industrial production grew only 2.1% in the first three quarters while exports grew just 2.4%. Several sectoral growth projections, such as for finance and public administration, also seem out of touch with reality given slow growth in related metrics like bank credit. With investment rates falling, it is unlikely that growth accelerated further just from efficiency gains. The CSO needs to better explain the statistical patterns behind its estimates to clear up these inconsistencies.
The Central Statistics Office needs to do a lot of convincing to establish the accuracy of its new statistics.
f the National Accounts Statistics with 201112 as the new
base year, which were released by the Central Statistics Office (CSO) in end January, raised as many questions as provided answers on the measurement of the size of the Indian economy, the advance estimates of national income in 201415 put out 10 days later cast a fresh set of doubts on the accuracy of the gross domestic product (GDP) numbers for the current fiscal. The CSO, based on new estimates of growth in the first three quarters, and on projections for the third quarter, says that 201415 will end with India showing a growth in real terms of as much as 7.4%. This will follow on the 6.9% growth in 201314 according to the CSOs revised numbers, which too seemed out of touch with reality. The reason why the CSOs advance estimates for 201415 have been viewed with even greater scepticism is that on the ground there are no visible signs of growth acceleration, let alone of a boom as these growth rates should imply. Important macroeconomic indicators run counter to the CSOs numbers for the current fiscal year. The index of industrial production (IIP) grew by only 2.1% in AprilDecember 2014, yet GDP in manufacturing is projected to grow by as much as 6.7% in the entire year. Exports in dollar terms have grown by a meagre 2.4% during April 2014January 2015 as against 6.4% during the corresponding period of 201314. The performance of corporates, as measured by net sales and profits, has also been disappointing so far. There are other sectoral growth numbers which are very puzzling. Finance, real estate and professional services (with a share of 21% in total gross value added or GVA at factor cost) are projected to grow by 14% in 201415, building on 8% growth in 201314. But bank credit by the scheduled commercial banks (one important indicator of activity in the financial sector) has been increasing at a slow pace and has slowed down since last year: 6.6% until early January 2015 in the current fiscal as against 9.7% in the corresponding period of 201314. The CSOs estimates also say public administration, defence and other services (share of 13% in GVA) will have expanded by 8.8% in 201415, an acceleration over an 8% growth in 201314. Yet, growth in public expenditures has been niggardly during 201415; total central government expenditure rose by only 6.2% in AprilDecember 2014. The only major sector where there is some correspondence between the CSOs advance estimates and
Economic & Political Weekly
EPW
february 21, 2015
vol l no 8
ground realities is agriculture: growth in real terms is to plunge
from 3.8% in 201314 to just 1.1% in 201415. Most significant perhaps is that the new series of national accounts shows that the rate of investment or the gross fixed capital formation (GFCF), as a percentage of GDP, has steadily fallen, from 33.6% in 201112 to 31.4% in 201213, to 29.7% in 201314 and finally to 28.6% in 201415. These levels of the rates of fixed investment are not higher than the estimates in the older series of national accounts which had 200405 as the base. Can growth accelerate even as the rate of investment falls? It could if capacity utilisation shoots up, but there is little evidence of that happening. All these numbers show that neither the macro indicators nor the sources of growth justify the buoyancy in the CSOs advance estimates of GDP growth in 201415. Senior officials of the CSO and the National Statistical Commission have correctly pointed out that GDP measures value added and not volumes, and that therefore higher GDP growth may reflect improvements in efficiency rather than an expansion of output. True, but if the GDP growth of 6.9% in 201314 was, as has been suggested, a result of greater efficiency in the economy, then does the even faster growth of 7.5% in 201415 represent a further quantum improvement in efficiency? This is highly unlikely. The absence of any visible signs of either productivity improvements or volume increases in any major sector therefore makes these new GDP numbers a very puzzling set of statistics. GDP growth in current prices will, according to the CSO, actually slow this year: 11.5% in 201415 vs 13.6% in 201314. Simultaneously, inflation has declined in the current fiscal, in a few sectors prices have even fallen. The decline in inflation as measured by the GDP deflator converted this modest deceleration in the growth of GDP at current prices into an acceleration in GDP growth at constant prices. In the end, the reason for the perplexing estimate of faster real GDP growth in 201415 may therefore be purely statistical. If so, it was important while putting out such startling numbers for the CSO to explain the statistical patterns and clear the inconsistencies between growth in value added and volumes. An explanatory volume has been promised but much confusion could have been avoided if the CSO had come out with the details alongside the release of the advance estimates for 201415. Lies, damn lies and statistics has always been an adage that unfairly belittles the valuable discipline of statistics. The casual release of statistics as of the GDP for 201415 does not, however, aid the cause of statistics. 7