Pay hike, data revamp to boost GDP from FY16

Written by Raj Kumar Ray | Updated: Nov 27 2013, 13:23pm hrs
After recording a decades low of 5% in FY13, India's GDP growth is unlikely to recover quickly and would remain subdued at 5-5.5% in FY14, the finance ministry said recently. A hike in the salaries of government staff is likely to give a boost to FY16 GDP if the Centre implements the recommendations of the newly set-up seventh pay commission from January 2016. Inclusion of new manufactured products in the IIP and GDP data when it is updated with a base year revision is also likely to reflect positively on the economic data. TCA Anant, India's chief statistician and secretary at the ministry of statistics and programme implementation, tells FE's Raj Kumar Ray that the GDP data series with a new base year (2011-12) will be available by 2015. He, however, cautioned that IIP and GDP may not show a significant change after inclusion of some of the highest-selling industrial items such as smart-phones, micro-ovens and tablets if the domestic value addition is low.

When is the new base revision coming up for GDP, IIP and WPI

We are planning a base year revision and update of data for GDP and IIP. The new base year for GDP will be 2011-12. We are hoping to put them in place by 2015. The commerce ministry will be doing the same for WPI.

Some of the highest-selling consumer goods items such as smartphones, micro-ovens and tablets are not included in the IIP basket at present. Will these products be included in the IIP when the new series come up

I can't give you details of what items will be included in the next series of IIP. A committee under Dr Saumitra Chaudhuri is identifying the criteria. Since IIP is a production data, the idea is to capture as many items as feasible, in terms of volume and value.

The IIP basket is updated in terms of the production strength. What is relevant is the domestic value addition. Imports are not part of IIP.

If a item is mostly manufactured abroad and you just put a sticker here and sell it, that will not come in IIP. However, a domestic production can include imported components.

Coming back to your question on highest-selling items, there could be an item with very high domestic sales but less of domestic value addition. So, we need to see the extent of domestic value addition before we jump into a conclusion that the items (you named) can come under the new IIP basket.

After the revision in base last time, the IIP and some component of GDP showed a higher growth. Will this happen again when the 2011-12 series come up for IIP and GDP

We can't say for sure that the updated data will show a higher growth. More data does not mean higher growth because GDP is comprehensive. Where direct data is not available, we use indirect estimates or proxies. Once new data comes, we get a direct data. We can't say whether it will be more or less than the proxies. When you don't get a continuous time series, you use surveys to arrive at a number.

In other cases, we use surveys to fill in for certain estimates. For instance, in the case of financial and non-financial companies we rely, at present, on a RBI survey. We are looking at the feasibility of migrating this to the data captured through the MCA 21 corporate database of the ministry of corporate affairs. This will be a different approach from the present, but it will impact growth data is not easy to predict.

Won't the salary hikes of government staff after Pay Commission boost the services GDP

In public administration and defence, the contribution to GDP is principally measured on account of the wage bill. If the effective wage bill goes up, it will show up in the GDP. The nominal GDP will definitely rise but not necessarily the real GDP. Please keep in mind not all pay commissions lead to a rise in the wage bill. Not many people know the 2nd and 3rd pay commissions resulted in a compression of salaries in real terms as there was no full indexation.

It was only after the fourth pay commission that real wages started rising.

Coming back to IIP, the data is showing too much volatility in recent years How do you address that

Volatility in the IIP is largely a consequence of its design. Volatility reduces the more we aggregate. In the short term, the solution is frequent updates. A company's output can drop to zero in a month but there could be sales of that product in the market. We can't measure what is available in the market as what may be seen in the market may be imported goods and not domestic output.

RBI appears to lean more on CPI nowadays than depend on WPI to capture inflation expectations. Is it a correct thing to do

CPI does not capture the inflation expectations but it does what consumers actually pay for. Appropriateness for monetary policy is a more complex issue.