1. Doubting India’s ‘fastest-growing’ GDP stats, economists devise their own

Doubting India’s ‘fastest-growing’ GDP stats, economists devise their own

From rural motorbike sales to rail freight, economists and even the central bank are devising their own ways to measure Indian growth.

By: | Mumbai/new Delhi | Published: February 5, 2016 6:22 PM
Indian economy, economic growth rate

The RBI looks at two-wheeler sales, car sales, rail freight, and consumer goods sales in rural areas “to get a better understanding of the ground realities. (Express photo)

From rural motorbike sales to rail freight, economists and even the central bank are devising their own ways to measure Indian growth.

Their verdict? It’s a good deal weaker than official data showing India to be the world’s most dynamic big economy.

Doubts about the accuracy of India’s gross domestic product figures persist a year after its statisticians unveiled new readings they say better capture value addition down the goods and services supply chain.

Under the new methodology, economists expect India will report GDP growth of 7.3 percent on Monday for the October-December quarter, according to a Reuters poll. That’s a touch slower than the previous quarter but comfortably surpasses the 6.8 percent growth posted by China.

While that number appears strong, the lack of a historical series – still in the works – makes it hard to conclude that Asia’s third-largest economy is doing well at a time when firms report poor sales, bank lending is slow and investment is weak.

“It doesn’t feel like we are growing at 7-8 percent,” said one official familiar with the Reserve Bank of India’s research methods.

Like other economists, the RBI is now turning to hybrid models that mix elements of the old and new GDP methods to get a better feel for the underlying health of the economy.

The RBI looks at two-wheeler sales, car sales, rail freight, and consumer goods sales in rural areas “to get a better understanding of the ground realities”, this official said.

The new data is a headache too for Finance Minister Arun Jaitley, who faces tough choices in his Feb. 29 budget over whether to hike borrowing and spending to compensate for the sluggish private sector.

HEAT MAP

By its own proprietary measure, Ambit Capital estimates the economy may have grown an annualised 5 to 6 percent in the October-December quarter.

“India is not the fastest growing economy in the world,” said Ritika Mankar Mukherjee, an Ambit economist in Mumbai.

“No matter how you cut it, while there are certain segments of the economy holding up such as IT or e-commerce, large parts of the economy are actually slowing down.”

Economists have drawn on techniques used by colleagues covering China, where GDP figures are widely suspected to have been smoothed for years by its communist rulers to underpin popular faith in their economic stewardship.

Ambit looks at criteria such as motor vehicle sales, power demand, and imports of capital goods to determine the real rate of expansion. Meanwhile, Citigroup has developed a heat map of 18 economic activities including two-wheeler sales, air traffic, and diesel sales.

Downbeat assessments of growth would more closely correspond with trends under the old GDP calculation method that until a year ago showed India experiencing the longest spell of sub-5 percent growth in a quarter of a century.

The slowdown is especially pronounced in rural areas, which have suffered two consecutive dry years.

“Demand is very weak because farmers’ income has been squeezed by drought,” said a Mahindra and Mahindra tractor dealer in Aurangabad, in the state of Maharashtra, who reckons his sales are down more than 20 percent from a year ago.

Ashish Kumar, who recently retired as the head of India’s statistics office, says economists are using the wrong gauges to understand data that measures value addition.

“You have to understand that the new GDP data essentially captures efficiency,” he told Reuters. “Comparing it with volume-based indicators would be a mistake.”

RBI Governor Raghuram Rajan has also endorsed the new GDP readings, saying sliding input costs are offsetting shrinking corporate revenues and inflating value-addition. Put more simply, sales may be slow but profits are rising.

Still, the statistics office is readying tools to better capture services sector data for GDP calculations and supplement it with employment generation data.

“Once we have all these data points, we will get a better picture,” said Kumar.

  1. Hemen Parekh
    Feb 8, 2016 at 6:15 am
    SOMETHING IS BETTER THAN NOTHING On 05 Feb 2016 , Economic Times carried a news report led : Employers May Get Sops for Creating Extra Jobs As per this report , NDA govt is expected to announce following incentives for employers who create new jobs : * 30 % tax exemption for units that create an additional 2 % jobs * Alternatively, the hirer could be given a 125 % rebate on provident fund contributions * Availability of easy, cheap credit through interest subvention ( Subsidy ? ) Even as I await the budget speech of Shri Jaitleyji on 29 Feb for full details , I wish to thank Shri Narendra Modiji for considering the CORE of my following proposal sent to him on 06 Nov 2014 : ------------------------------------------------------------------------------------------------------------------------------ To complete this ECO SYSTEM , we need to think " Out of the Box " in the matter of Corporate Tax Regime , as well Current trend in industry , all over the world , is to > Add highly productive , very expensive machinery to " Automate " all manufacturing processes > Reduce manpower by increasing " Capital / IT Intensity " > Hire low skilled workers by transferring higher " Skills " to machinery > Outsource manufacturing to countries where manpower is cheap > Move out of " Manufacturing " and shift to " Services " India cannot swim against this World-wide Trend We must innovate, to not only survive but to grow in this scenario Here is my suggestion : Set in motion , " INVERSION of JOB REDUCTION " regime , under which , " The more jobs a company creates , the less Corporate Tax it pays " Example : > Up to employment of 100 persons ............................... 30 % > 101 - 500 persons.................................................... 25 % > 501 - 1000 persons ................................................... 20 % > 1001 - 5000 persons .................................................. 15 % > 5001 - 10,000 persons ................................................. 10 % > Above 10,000 persons ................................................. 5 % Let us celebrate those who provide employment to large number of persons Let us celebrate BIGNESS Let us create hundreds of WORLD SIZE corporations and take on the World On top of this , provide additional tax - breaks ( discounts ? ) to corporate as follows : > Average Age of Employees at 30 years....................... 1 % > Ave age at 25 years................................................. 2 % > Ave age at 20 years ................................................. 3 % Of course , very strict and transparent rules will need to be framed to compute, > Number of Employees ( Permanent - not probationers / trainees ) > Average Age ( as on 31 March of Tax year )......etc But , here is an important aspect of this , " Incentivize Job Creation " Scheme : Today's labour laws make it extremely difficult - if not impossible - for employers to layoff / retrench workmen , if demand shrinks Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned And , last but not the least , permit each and every candidate - and the political parties as well - to spend ANY AMOUNT on election campaigns , without any restrictions as also accept any amount of Corporate Donations by cheque ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- hemenparekh / blogs 07 Feb 2016
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