Amid reports that the impact of demonetisation is finally visible on GDP growth, which slowed to an at least eight-quarter low of 6.1% in Q4 FY17, TCA Anant, the country’s chief statistician, explains how the data available up to now are inadequate to reach a conclusion. In an interview, he also expresses concerns about the share of investments in GDP falling to below 30%.
Would you agree with analysts that demonetisation dragged down GDP growth in Q4FY17?
I don’t make a suggestion unless I am able to justify it through statistical reasoning. Any worthwhile statistical assessment would have to carefully delineate the counterfactual of what would have been the growth rate had there been no note ban from what the growth is post-demonetisation. And that’s not possible, given the very limited data available. Two quarters’ data are not enough to venture into a meaningful statistical exercise on the impact of demonetisation on growth.
The financial services segment, a major driver of GDP in recent years, saw just a 2.2% expansion in Q4FY17, against 9.4% in Q1 of the last fiscal. The construction segment, in fact, contracted 3.7%. How do you see these?
The financial sector is a composite unit comprising financial, real estate and professional services segments. The poor performance of real estate has been linked to a number of factors, including the fact that it is going through major transformation exercises. Some of these are related to the passage of the Real Estate Regulatory Authority Bill and some even predate this. In the financial sector, the dynamics are linked to several factors. It has also been influenced, in part, by the fact that the investment climate hasn’t been good. But how precisely all these factors influence the performance of this GDP segment needs more careful scrutiny.
Wasn’t the slowdown in GDP growth setting in even before note ban (the growth dropped from 7.9% in Q1 to 7.5% in Q2)?
The WPI series reflects a global phenomenon where commodity prices, particularly petrol products, had crashed in 2014-15. Consequently, WPI also entered a negative territory. Then the crash in commodity prices bottomed out and the prices started hardening. This also got reflected in the WPI, which began to rise. So, when the WPI crashed, real GDP growth went up. But people knew that when the WPI is going to rise, it will have an impact on real growth. To that extent, the slowdown in Q4 was quite expected. An unfavourable base played a role in the slowdown as well.
Gross fixed capital formation (FCF) contracted 2.1% in Q4 FY17, accounting for just 28.5% of GDP? Isn’t it a matter of concern?
The slowdown in gross FCF has been a matter of concern for some time now. As a rule of thumb, gross FCF below 30% of GDP is an area of concern. We would certainly want it to make up for more than 30%.
Though the private final consumption expenditure (PFCE) has been propping up GDP growth in recent years, its expansion slowed to 7.3% in Q4 FY17. How do you explain this?
On the expenditure side, we get very limited side at the stage of advance and provisional estimates. When the full accounts are prepared at the time of the first revised estimate (the FY17 GDP data will undergo first revision in January 2018), more substantive expenditure side data would have been available and taken into account. At this stage, we get broad heads from which allocations are made. Ultimately, expenditure side figures are derived from observed indicators and the production-side estimates. So, at this point of time, PFCE estimates could be a little imprecise.
Some analysts have pointed out that without decent growth in agriculture and public administration, the growth in gross value added in Q4 FY17 would be just 3.8%. This suggests a broad-based slowdown. How do you view it?
I don’t know the purpose of such an analysis. In every GDP estimate, some segments would grow at a faster pace than the rest. The farm sector accounts for 48% of our workforce located in parts of the country that account for 70% of our households. Merely trying to pull numbers out of hat to say this is slowing down is not a good analytical approach.
The new series data on the index of industrial production (IIP) and the whole price index (WPI) didn’t really alter the GDP trajectory much. Why?
It didn’t influence the annual GDP growth rates as much as it did with quarterly estimates. The IIP plays a limited role in GDP calculation. Its role is mainly restricted to the non-corporate segment outside agriculture. Further, it’s replaced by the ASI data wherever those are available. It’s also important to note that the WPI also doesn’t enter the GDP calculations simply as the index as a whole; instead, it is applied in different GDP compilation categories as per relevance. In fact, when the new series data were announced, I had cautioned people not to make simple assessment based on aggregate WPI and IIP figures.