The sharp upward revision of growth for 2013-14 to 6.9% from 4.7% reported earlier due to a change in the way gross domestic product is measured doesn’t necessarily endorse the view that the country’s economy had turned the corner in the last fiscal.
“Let’s be clear about it. The index of industrial production (IIP) is the only real measure we have of physical output. The IIP during 2013-14 didn’t show a good performance. What the new set of GDP data reveals is that over the three-year period (through FY14) when the economy didn’t do particularly well, companies became more efficient. And we have been able to capture more of the efficiency,” Pronab Sen, the chairman of the National Statistical Commission, told FE in an interview.
Industrial production contracted 0.1% last fiscal. While the expansion in mining and manufacturing, according to IIP data, was -0.6% and -0.8%, respectively, in 2013-14, the latest data showed the growth in gross value added in mining was 5.5% and 5.3% in manufacturing.
Earlier this week, chief economic adviser Arvind Subramanian had said he was puzzled by the high growth rates, given that 2013-14 was a crisis year, marked by import decline, high inflation, monetary tightening and capital outflows, though he didn’t dispute them. RBI governor Raghuram Rajan has said it is “premature to take a strong view” based on the latest GDP numbers and he would wait for the advance estimate of GDP growth.
Asked how the growth could be so high when some key indicators — imports, capital outflows, auto sales, inflation, investment — were not signalling health in 2013-14, Sen said the general productivity of the economy has improved. “When we think of the economy, we are usually thinking in terms of output. The GDP is a measure of value added. So it’s entirely possible theoretically to have a situation when output is completely stagnant but value addition is going up. Now think of this scenario: My production is constant but my efficiency goes up, which means I am using less input to produce the same output. But what it may also reflect is that imports may have come down because I am using less material,” he added.
Moreover, to capture the a clearer picture of the corporate sector, the government is now using the ministry of corporate affairs’ database which gives information on 5 lakh companies, instead of calculating on the basis of the balance sheets of 2,500 companies.
“In addition, the MCA database gives us information on limited liability partnerships and not just listed firms,” Sen said. However, even though economic growth rates have been reported higher, the indicators that are expressed as a ratio of GDP are unlikely to witness significant revisions and not much help would be forthcoming for the finance minister in sticking to the fiscal deficit target for the current fiscal. This is because the nominal GDP for 2013-14, against which the indicators like fiscal and current account deficits are calculated, has been estimated at Rs 1,13,45,056 crore, even lower than Rs 1,13,55,073 crore pegged earlier according to the 2004-05 base year.
Sen said the government will revise estimates of GDP growth, quarter-wise, since 2011-12 and also issue the advance projection of the GDP growth for the current fiscal on February 9. “But we don’t know what it’s (forecast for FY15) going to be like because when we change the bases, everything that comes after that also changes.”