More than a year after the government changed the way the national income was computed, some economists continue to question the estimates. While conceding limitations of the current practice of issuing advance estimates, National Statistical Commission chairman Pronab Sen strongly defends the methodology used to firm up the GDP estimates. In an interview with Banikinkar Pattanayak, he says the CSO is planning to conduct an annual survey of services to better capture value additions in the sector, which accounts for more than a half of the country’s GDP, and that the latest GDP estimates will be revised once the new IIP and WPI series data are finalised later this year. Excerpts:
Analysts say the CSO’s advance estimate of 7.6% growth for the current fiscal, compared with 7.2% in 2014-15, is an ambitious one. How do you see it?
The advance estimate for the full fiscal is based on the forecast for the fourth quarter. The CSO’s position is that it shouldn’t be in the business of making forecast. Since the RBI and the finance ministry want it, we do it. But it can be said that the advance estimate has relatively weaker statistical basis. Even the third quarter data are partial, as the December quarter results of many companies were not available when the CSO had to firm up the estimates. So the third quarter data will also be revised.
But is the 7.6% growth for 2015-16 achievable?
That’s difficult to say. Normally, we study the patterns observed in the previous years and use that to extrapolate data for the fourth quarter and issue an advance estimate. But these patterns are not absolute, and they can change. That’s why a provisional estimate for the full year will come only by end-May when we have all the data available.
The gross value added in manufacturing rose as high as 12.6% in the third quarter, while manufacturing growth in the IIP for the same quarter was much less (0.9%). Although theoretically growth rates in both the indicators can vary, but why is such a huge gap?
The 12.6% manufacturing growth, which is based on corporate balance sheet data, is driven essentially by the fact that the wholesale price index (WPI) used in the GDP deflator is negative. If you look at the nominal manufacturing GVA, the growth rate is 10.9% for the December quarter, which is also good. But then, as I said, these data are set to be revised. And until the latest IIP series is finalised with the new base year, the industrial production data can be flawed.
When will the latest IIP series be finalised and how will it affect the GDP estimates?
Originally the data collection was supposed to be over by December 2015 but because of the floods in Chennai, I don’t think it should be ready before September. And the revision in the WPI series is also being done simultaneously, so the new WPI series will also come around the same time. Once the new IIP and WPI series data come, you will see wholesale changes in GDP estimates, because at the moment the GDP estimates are based on the 2004-05 IIP and WPI series.
The private final consumption expenditure growth has been estimated at close to 12% for the fourth quarter, while the expansion had been just 6.1% in the first three quarters of this fiscal. Why?
As I said it’s an advance estimate. We first arrive at the overall GDP growth rate and then see how the growth rate for each segment can be projected accordingly. So these data will undergo revisions. That’s just guess work.
Economists have expressed reservations about the way services growth is estimated. How are you planning to better capture services?
The best way to capture services is through employment. We are planning to have quarterly employment estimates. We have also been trying to do an annual survey of services, just like the current annual survey of industries. Plus, once we get a clearer picture of the people employed in our defence services, we will be able to better capture services.