1. IMF to examine India’s ‘puzzling’ growth data

IMF to examine India’s ‘puzzling’ growth data

Will send an experts’ team this week to ascertain CSO’s figures

By: | Washington | Updated: April 20, 2015 10:28 AM
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The IMF will also be looking to obtain more ‘back-casted’ historical data in addition to ‘forecasted’ data on the basis of the new methodology used by the Central Statistics Office.

Terming India’s recently revised gross domestic product (GDP) growth data as “puzzling” and prima facie one with “discrepancies”, the International Monetary Fund (IMF) has said it will send a team of its statistics experts to New Delhi this week to better understand the new methodology of calculation and ensure the data is error-free.

The IMF will also be looking to obtain more ‘back-casted’ historical data in addition to ‘forecasted’ data on the basis of the new methodology used by the Central Statistics Office (CSO) so that it can find out India’s potential output and thereby forecast the country’s medium-term growth rate.

Paul Cashin, IMF Mission chief for India, told FE: “We are seeing discrepancies or puzzles regarding some of the high frequency data. It has become a problem not just for us, but for the Indian finance ministry, the Reserve Bank of India (RBI) and all entities using the data.”
Besides, the IMF team will give its suggestions on the new Consumer Price Index (CPI) based inflation data and the methodology of its calculation (base year was shifted from 2004-05 to 2011-12 and weights of many food and non-food items were changed). The RBI has made CPI, instead of wholesale price index, the key factor in monetary policy decisions.

In the new GDP calculation method, the CSO shifted the base year from 2004-05 to 2011-12. For making the country’s growth rates internationally comparable, the calculation was shifted from GDP at factor cost to GDP at market prices (to arrive at GDP at market prices from factor cost, indirect taxes — net of subsidies — are added).

According to the CSO, the new methodology also captured value added attributable to efficiency in a better way and used more representative corporate data from the ministry of corporate affairs database.

After the revision, the GDP growth in 2012-13 was revised 4.7% as per old series to 5.1%, while the 2013-14 data baffled many as the upward revision was huge — to 6.9% from 5%. Manufacturing and financial sector data looked much better though the corresponding industrial output and bank credit data did not show such robustness.

Incidentally, 2013-14 was a difficult fiscal which witnessed tight monetary policy and capital outflows. Besides, despite rising bad loans and several stalled projects in 2013-14, the new data showed increased private corporate investment. Growth in 2014-15 was pegged by CSO at 7.4%.
Taking this data into account, the IMF projected India’s growth at 7.5% both in 2015 and 2016 (up from 7.2% in 2014).

Cashin said the CSO had sought the IMF’s ‘technical assistance’ (TA), which, among other things, aims to improve India’s quality of economic statistics.

However, he said the IMF is pleased that India has shifted to the ‘System of National Accounts (SNA) 2008’, ‘the latest version of the internationally accepted statistical standard for national accounts that helps in compiling measures of economic activity’.

“Being SNA 2008 compliant is a stamp of good quality in terms of statistics,” he added. When countries move on to SNA 2008, typically they get an outside entity — like another country’s statistical authority or the IMF — to review their calculation and give suggestions on

On the importance of back-casting of data, Cashin said so far the CSO has given the IMF the GDP growth data (on the basis of new methodology) only for the previous four years.

“This means, we are trying to compare an apple and an orange. We don’t quite have historical data on the orange yet to speak quite definitively on that. But if I am telling you the growth will be 7.5% (in 2015 and 2016), India was obviously growing much faster than that before 2008.

Therefore, it is consistent with what our research department colleagues are saying, which is that India (like most other emerging markets) is growing potentially slower than what it was before 2008,” he said.

Cashin added that it was hard to figure out the potential output right now. “It is as if we have an old India running on old numbers and a new India running on new numbers. It is hard to figure out what medium term growth rate is now for India. Though we would peg it at 7.75%-8%, we will have to do more work on this by looking at new numbers and new calculations. That is something we are grappling with,” he said.

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