Did the Indian economy grow at 7% in 2008-09? Doubts are being raised. There are fears that the growth rate could be lower because foreign trade growth is still negative and, in February, growth in movement of frieght over the railways and through ports was also negative. Discussions have also hovered around the use of seasonally-adjusted annualised (SAA) series. The use of the SAA has complicated the discussions as most analysts are not familiar with the trends seen in a SAA series. In India, we are used to seeing original series.
The move to SAA warrants a complete new learning for all who produce and use sub-annual economic data. Perhaps, there needs to be a studied transition to the SAA. It would be useful if the National Statistical Commission examines such a transition to the SAA series of monthly and quarterly data. The X12-ARIMA model of the US Census Bureau provides a good starting point. In the meanwhile we continue to use the unadjusted series with year-over-year or month-over-month comparisons as we deem fit and have conventionally used.
Using an SAA series would certainly be useful in comparing the February 2009 data with any period of the past. February 2009 had 28 days. A month-over-month growth compares production of a 28-day period against production of a 31-day period. And, a year-on-year growth compares a 28-day period against a 29-day period. Either ways, February 2009 would be at a disadvantage. This is causing anxiety with the February 2009 data on freight mentioned above. In the spirit of the SAA, it is more important to look at possible turning points in the economy rather than look at the overall average growth numbers. So, a discussion of whether the economy would indeed clock 7% in 2008-09 is now futile.
A more relevant point is ? where is the economy headed? Is it headed into a deep abyss like the graphs for industrial production growth in Japan or Korea look like? Or, is it emerging from the shock of the October-December 2008 quarter? Here are a few snippets from CMIE?s forthcoming monthly review of Indian industries: 1. Cement consumption grew 8% in January and 8.2% in February after having grown by 13% in the November and December. Prices shot up 2.8 % in February. Capacity utilisation is at a high 93% although capacities have shot up by nearly 14% this year. Apparently, the Indian cement industry never suffered the slowdown. No wonder the industry continues to enjoy net profit margins of 12%! 2. The steel industry that witnessed a 2.5 and 6% decline in output in November and December 2008 respectively, saw a turnaround with a 1.6% increase in January 2009. Sail, Tata Steel and JSW have announced increase in volumes in January and February. JSW commissioned its 3 million tonne-steel plant in February after postponing its commissioning that was due in September 2008. Steel prices that had been falling in January and February 2008, stabilised in March; they even inched up a bit. 3. Tata Motors has launched the Nano and many others have launched new cars in the past few weeks. And, even before this, car sales rose by a whopping 22.7% in February 2009. The growth was fueled by the domestic economy. Sales of two-wheelers increased by 12.8% in February.
The industry has recovered smartly after four consecutive months of year-on-year declines. Sales of commercial vehicles in February were 33 % higher than in January although February has 10% less days than January. After launching its new car, Mahindra & Mahindra talks of aggressive plans to enter the two-wheeler industry with its recent acquisition.
4. Tourist arrivals in February were higher than arrivals in January. And, the year-on-year fall has declined significantly. Traffic on airlines has also risen in spite of the rise in fares. According to the directorate general of civil aviation, passengers that flew in February 2009 were marginally (10,000) higher than the those that flew in January 2009. Cement, steel, automobiles and tourism are big industries. And, all of them point to a robust recovery in recent months. And, this robust growth should overule the anxiety that may arise from the freight movement data.
Anecdotal evidence and newspaper reports indicate that consumer demand is strong again. There are reports of a recovery in footfalls to the malls. Newspapers are again being flooded with full page advertisements of new housing schemes. Rama Bijapurkar continues to write of sustained consumer demand?now with a greater focus on rural India. Robust rural demand makes sense to me in the context of the current turnaround because rabi sowing is up 3.1% after the 2.4% fall in kharif sowing. Further, the International Research Institute for Climate and Society at Columbia University has forecast normal to slightly above normal monsoon for India during June to September 2009.
The financial markets seem to be recovering too. Non-food credit that had declined in the second half of January 2009, recovered during February. Whether you crunch the numbers SAA or YoY, the evidence is loud and clear that the economy is recovering from its completely unexpected, unusual and sudden shock of the October-December 2008 quarter. The economy was on a robust growth trajectory before this shock and, after a brief but hard knock, it is getting back into its faster growth lane.
The author heads the Centre for Monitoring Indian Economy