The change in the base year for computation of national income (from 2004-05 to 2011-12) and the consequent sharp upward revision in last fiscal’s growth rate seems to have stirred up a hornet’s nest: RBI governor Raghuram Rajan says he finds it hard to see the economy as rollicking in 2013-14, chief economic adviser Arvind Subramanian says he is puzzled by the high growth rate, but former finance minister P Chidambaram says the new data conclusively establish that the UPA succeeded in reviving the economy. While Monday’s advance estimate for 2014-15 will hopefully bring in more clarity, Pronab Sen, chairman of National Statistical Commission, says the latest set of data reflects companies became more efficient and added more value even when output was stagnant. In an interview with FE, he adds that there was an over-estimation of services data in the 2004-05 series and, consequently, the nominal GDP shrank 2 percentage points in the 2011-12 series. Exceprts
The latest GDP growth data showed a substantial upward revision for 2013-14 to 6.9% from 4.7% even as some other indicators point in the opposite direction. Why?
When we think about the economy, we usually think output. The GDP is a measure of value added, it’s not about output. Theoretically, it’s possible to have a situation where output is stagnant but value-addition is going up.
Does it mean the growth rate of efficiency fell in 2013-14 compared with the years when we grew at 9%-plus?
No, the rate of growth of output has fallen. We can have a drop in the level of production and yet have growth in value addition. They are not necessarily correlated. Moreover, although many companies recorded flat top lines, their bottom lines were better. One of the indicators of a pick-up in the efficiency of companies was that the Sensex rebounded strongly after the 2009 trough.
Now that the base for calculating GDP for 2014-15 seems to be not-so-favourable, do you see a lower growth rate this fiscal?
When we change the base year, we recalibrate the quarterly estimates for that year. So, automatically, the quarterly estimates since 2011-12 will have to be revised so that growth rates across quarters can be compared easily. They will be released on February 9, along with GDP data for the third quarter of 2014-15 and the advance growth estimate for the entire fiscal, using the new series. But we don’t know what it will be like because when we change the base year, it changes everything after that.
The growth rate in savings (9.3% in 2013-14 compared with 6.3% in 2012-13) has exceeded expectations.
Earlier, we were adding the ‘valuables’ segment, which basically comprised gold and jewellery, to capital formation and it was treated as consumption. Now, we have added valuables to household savings and, therefore, consumption has come down and savings have gone up accordingly.
On the trade side, there is a huge difference between the earlier and current data.
I haven’t looked specifically into that. But, at the sectoral level, we get trade data from DGCIS and unless they have revised something, I don’t know.
Chief economic adviser Arvind Subramanian has said he is puzzled by the numbers. Can he use the latest data for the economic survey?
As I have always said, he doesn’t have much of a choice (smiles).
Is accurately capturing the services sector still tough?
Trade is the single-largest service sector. When the base year was revised to 2004-05, there were no hard data for it. So the 1999-2000 numbers were projected to 2004-05, and that projection was an over-estimate. This time, we have used the survey data on services, which means we had to recalibrate the trade sector. That’s one of the reasons why absolute GDP has shrunk (by roughly 2 percentage points in 2011-12 from the
Rs 83.9 lakh crore reported earlier).
Did you factor in any additional data source this time?
The traditional ones — such as IIP, the annual survey of industry (ASI), NSS surveys — still remain, and we added a few more. The most important one is the ministry of corporate affairs’ (MCA’s) database. Earlier, for the corporate sector, we were using data based on the balance sheet of 2,500 companies, but this time we are using the MCA database which gives us information on 5,00,000 companies. In addition, the database also gives us information on limited liability partnerships.
But why hasn’t the base year of 2004-05 changed for IIP yet?
That will also happen. For that, we first need the national account estimate as the IIP rates are derived from the national account. Now that the national account has been revised, sector-wise weight will be determined for the IIP and then revised data will be generated.
But until that happens, won’t IIP and GDP show more divergence?
Yes, so you can expect more revisions. Basically, the bases for calculating the IIP, WPI and CPI will be changed and, based on these revisions, the GDP figures will be revised once more.
When you factor in companies’ profit data while computing national income, do you exclude ‘other income’?
No, we include it. But, exceptional items, like sale of land, are not included because it’s just an asset transfer and reflects only a change in ownership. But things like treasury profits are included since they are incomes.
Subramanian also expressed concerns over the downward revision of the GDP deflator when inflation was high.
Though inflation was high in 2013-14, it was lower than the previous year. WPI already started to moderate in 2013-14 and although CPI was high, it had eased a bit from the year ago. Since the calculation of the GDP deflator was relative to the previous year, it was revised downward for the last fiscal.
Is there any need for the government to re-classify Plan and non-plan expenditure?
The whole idea of Plan and Non-plan, originally, was to distinguish developmental and non-developmental expenditure. Non-plan meant those forms of expenditure that were required for the functioning of the states whereas plan was all developmental expenditures. (But) That distinction between developmental and non-developmental expenditure simply got more and more blurred over time. And, today, a rational view of a particular programme can’t be taken as a lot of costs of those developmental programmes are hidden in non-plan. If that is the case, we have to rethink the classification, and there is nothing wrong in going back to the old classification of developmental and non-developmental expenditure. But what it involves is a complete recast of the government accounting system, which isn’t a trivial exercise because such a system runs down to even the district level. So, even if the principles are ready, just the process will take three years to be fully operational. I feel it will help allocate resources better with a cost-benefit analysis.