‘India’s new national income series is obscure, unpalatable’

New Delhi, Sep 15:

Even after seven months since India’s gross domestic product (GDP) data was unveiled under a new series, the controversy over the changed methodology employed by the Central Statistics Office (CSO) refuses to die down with economists even terming it obscure.

It all started when advance estimates of GDP for 2014-15, released in February, projected India’s growth during the year at 7.4 percent.

The new numbers seemed contradictory when compared with other economic indicators such as revenue growth of listed firms, expansion of bank, the index of industrial production numbers as well as real challenges confronting India Inc. such as weak demand, high debt and low earnings.

Critics pointed to the new methodology showing that manufacturing grew at 5.3 percent in 2013-14 compared to 0.7 percent, which they maintained was hard to reconcile with the ground level reality.

“With a marginal expansion in manufacturing, the growth figures of 7-8 percent are absolutely not credible,” said noted economist Ashok Desai, who was part of the Prime Minister’s Economic Advisory Council in the first few years of liberalisation, 1991-93.

“The Bharatiya Janata Party-led government, after coming to power last year, has also changed the chief of the Central Statistics Office (CSO), now responsible for these unpleasant statistical juggling,” Desai told IANS.

Arun Kumar, till recently a professor at Jawaharlal Nehru University here, had a different take.

“The Reserve Bank of India (RBI) needs the (higher) GDP data to justify its stance on cutting interest rates slowly,” he said.

“If the rate of growth is already healthy, why the tearing hurry to lower interest rates when inflationary expectations are not yet tamed,” Kumar wondered aloud.

He told IANS that in view of negligible industrial growth, drought-like conditions in past years and no substantial increase in profits and wages, the new numbers fall flat from the point of credibility.

“Even input costs, that are now low with falling oil prices, were not low in the period 2011-12. Let the statistics office show the growth figures for up to 10 years prior to the base year for us to consider the new series seriously.”

This is also not a matter that has not caught the attention of Finance Minister Arun Jaitley and his team. Last week, at The Economist magazine’s conference here, Jaitley welcomed the debate on the new series.

Seeking to clarify that the government had no role in the matter as the statistics office was an independent organisation, he said: “Let the exercise as well as the debate continue, which is always welcome in democracy.”

For the record, a committee headed by the National Statistical Commission Chairman Pronab Sen has been set up to examine the estimation methodology. But critics say he has been a vocal supporter of the new series — hence question if the findings will be bipartisan.

Changing the base year to 2011-12 from 2004-05 in January, the CSO said that India’s real GDP, that is adjusted for inflation, grew 6.9 percent in 2013-14 instead of the earlier projected 4.7 percent, and by 5.1 percent in the year before compared to 4.5 percent under the previous system.

Advance estimates for 2014-15 released in February, projected India’s GDP to grow 7.4 percent.

Critics feel even if one takes into account the performance of the National Stock Exchange-listed companies in the manufacturing sector, it reveals that earnings have been declining in the past two years — reducing by four percent in 2013-14.

The rate of investment as a percentage of GDP has also steadily fallen from 33.6 percent in 2011-12 to 31.9 percent in 2012-13, to 30.7 percent in 2013-14, and to 30 percent in 2014-15, even as GDP growth was shown as accelerating.

This sharp acceleration in growth in 2013-14 is considered quite curious as it was also the year of the rupee crisis — and this is what, perhaps, constrained Reserve Bank of India (RBI) Governor Raghuram Rajan to hike policy rates by 300 basis points.

“We do need to spend more time to understanding the GDP numbers,” Rajan had remarked then, while unveiling the bi-monthly monetary policy that had, in fact, retained the 2014-15 growth forecast of 5.5 percent based on the old method.

The RBI’s next monetary policy review is slated for announcement on September 29.

“I am puzzled, as I said, because the fact that especially what happened in 2013-14, that number is puzzling because that is a kind of bad year, yet growth accelerated,” Chief Economic Advisor Arvind Subramanian had also remarked in February.

Based on the new series, the Indian economy is officially estimated to have grown by seven percent in the first quarter of this fiscal, slower than the 7.5 percent expansion in the quarter before — but much higher than 6.7 percent registered in the first quarter of the last fiscal.

This is what has earned India the top rank for growth among major economies.

“It cannot be that you prepare one year’s figures and say now you’re doing 7.4 percent or 8 percent or 20 percent,” former finance minister Yashwant Sinha said in Mumbai recently.

“What are the new norms?” Sinha queried, while also alluding to the Sen panel. “Even the chief economic adviser of the Government of India does not understand this. And we’ve put the same culprits to sit in judgement over this change.” (IANS)