In ``The economy's mid-year blues'', published in the Financial Express dated October 13, Mr Sanjaya Baru had made several important observations, the most significant being that the economy may not be in such a bad shape as it seems from the various estimates of the RBI, CMIE and others.

I sincerely hope that Mr Baru's pessimism regarding the forecasts turn out to be true and the economy does recover from the poor estimates. Unfortunately, the damage is done. And hopes cannot repair the damage done to the rain-starved crops of Gujarat, Madhya Pradesh, Orissa and Rajasthan. The economy cannot be ``retrieved quickly to post a smart rate of growth by the year-end'', as stated by Mr Baru in his article.

This is not a case of the usual ``mid-financial year blues'' as Mr Baru said. This is a year in which the monsoon has been the worst since 1992. It has been a year in which the prices of petroleum products have been raised by 66 per cent. It has been the third consecutive year of stagnation in investments. Such a situation did not exist last year, and the year before, and the year before, etc.

One cannot assume that the combination of a terrible monsoon and the record petroleum products hike would have no impact upon the economy. Mr Baru included. He agrees that all is not ``hunky-dory'' with the economy. And that is the basic point that the RBI, the CSO and a host of other commentators are making.

Mr Baru's statistical evidence of mid-year blues is impressive and worthy of further investigations. But it does not provide a basis to discard the evidences of a slow down. Because if we did that then, by construction, one cannot make a downward revision to a forecast no matter how terrible a monsoon or how steep the hike in petroleum prices. A bad monsoon is not predictable. Neither is the hike in petroleum product prices by government diktat. All pre-monsoon forecasts assume a normal monsoon. So, when the monsoons are less than normal, it is time to relook at the forecasts. This is precisely what the forecasting agencies have rightly done.

The Union Ministry of Agriculture has already announced that the kharif output this year is more than a million tonnes lower than in the previous year; the CSO has announced that IIP growth this year is lower than in the previous year. The CSO has already indicated a slow-down in the services sector in the first quarter. A forecasting agency cannot ignore all these evidences and continue to provide a rosy picture of the economy.

Such forecasts are an essential component of business planning. The Reserve Bank requires to take a view on real GDP growth in a year to set its monetary policy for the year. Similarly, bankers, corporates, enterprises at large plan their businesses keeping in view the possible growth scenario. These organisations either generate their own forecasts or use the services of professional agencies which provide forecasts.

The CSO is not in the business of forecasting (CSO estimates are the final test of the forecasts made by others). Nor is the RBI in the business of forecasting. But, unlike the CSO, it needs a forecast. And to do this it does not have to set up a machinery like the CSO. Ditto for the CMIE and the NCAER because forecasting is different from making official estimations.

The CSO is the official estimator and the final authority on India's National Accounts. But there is no official forecast and there cannot be a final authority on forecasts. Both the RBI and the Ministry of Finance are ``official'' agencies. But note their differences over the growth estimates. While the Ministry of Finance defends a growth of seven, such differences are bound to exist.

There are several methods deployed in forecasting the economy and different agencies use different systems. We certainly need only one CSO to make the final estimates, but there can be multiple forecasting agencies. Now, if these multiple agencies simultaneously come to the conclusion that the economy is slowing down, they are not indulging in competitive pessimism as stated by Mr Baru. Certainly not the RBI. And I can certainly state the same for CMIE. The message is that there is some unanimity in the fact that the economy is slowing down.

Forecasting an economic variable is not like aiming at a fixed target. The target - the CSO's estimates also shift over time. For example, its advance estimate of 6.8 per cent for 1996-97 announced in January 1997, moved up to 7.5 per cent in February 1998. Similarly, its 5.8 per cent advance estimate for 1998-99 changed to 6.8 per cent by February 2000. And its advance estimate of 5.9 per cent in February 2000 moved up to 6.4 per cent by July 2000.

Such revisions happen because even the CSO does not have its own data collection machinery. The CSO relies upon information supplied to it by the various ministries and other agencies. If these undergo changes, the CSO estimates will reflect them. The forecasting agencies face similar problems. Thus, if the basic data available undergo change, forecasts and estimates alike would undergo changes. Neither the CSO's estimates nor the RBI's nor CMIE's forecasts are conjectures. All of these use the official statistics available from various agencies to present a picture of the direction the economy is currently taking. And here, no matter how much we quibble over statistics, currently there is evidence of a slow down.