Statistics and Programme Implementation secretary TCA Anant speaks on the recent economic data and the investment torpor in an interview with FE?s Banikinkar Pattanayak and KG Narendranath. As increase in volatility and conflict among different data sets have somewhat dented the credibility of official economic figures, the country?s chief statistician seeks to explain why volatility has been a historical trait, and outlines the systematic processes to address it. He also explains why corporate financial statistics don?t necessarily correspond with the index of industrial production (IIP) data, even as a committee is studying why the two are barely in conformity with each other.
What is your assessment of the GDP growth in the second quarter? Will it be lower than the first quarter or will it remain at the same level?
I don?t attempt to forecast the growth in the gross domestic product (GDP). There are other groups, such as the Prime Minister?s Economic Advisory Council (PMEAC), which make the forecast. We at the Central Statistics Office (CSO) don?t make forecasts about the GDP. Under the circumstances, and considering the nature of my job, it would be good on my part not to try to make any forecast about the GDP.
You have said investment in the country is tightening, also because of its cyclical nature since 2008 (not just adverse external factors and the domestic policy impasse)?
That?s something I had assessed and that was correct. That investment has cyclical properties is well documented. And I think in India, we were heading for ? even if nothing like the global macro-economic crisis would have happened ? a slump on account of a slowdown in investment. But then, the slowdown in investment also got combined with certain other events, including the global crisis, which overlapped it.
The investment cycle is assessed, assuming all other parameters remain the same. But in the actual economic situation, not all these remain the same. So what happened to our growth rate is an assessment based on a combination of long-term and short-term factors. Most analysts who study India say the long-term prospects are bullish, but the question is how will the short-term factors work themselves out. And that is very hard to say.
But if you are asking me to take a longer view on India, I would say I am very optimistic. The Planning Commission has pegged growth at 8.25% for the Plan period (2012-17). So that is a sort of assessment based on underlying long-run dynamics of the economy, and I think those are robust.
The investment rate has declined some 5 percentage points since 2007-08 and you have to get it back to 38-39% as the finance minister has said. How do you foresee the revival of the investment rate?
There is an availability of resources. And when I talked about the investment cycle, there was certain logic to it. Large corporate entities undertake a series of investment projects. Revenue flows of an entity will, therefore, need a certain amount of time to pick up before it can undertake another major project. It is by that logic I said when you have an investment boom, when corporate entities have already undertaken large investments, there would be a natural tendency among some of them to slow down to allow the revenues to pick up. That supply side of investible funds, because past investments have been done and revenues are picking up, is likely to happen. But accompanying it, there has to be a demand side of the capital as well. To what extent that is taking place, and to what extent we have been successful in creating the demand for policy purposes is to be seen. Some things are going to happen. There is also a cycle created by the (Five Year) Plan. In my judgement, as a Plan winds down, a certain sort of uncertainty is created because the formal process of public spending requires the Plan to be approved formally. So, some disconnect may take place as the old Plan schemes start slowing down until the new allocations are approved.
The Kelkar Committee on fiscal consolidation has suggested, among other things, some curbs on the government?s capital expenditure, too. How do you view this?
The 12th Plan has a large commitment on public investment. Even where the public sector is investing in non-capital areas, it will have positive effect on the economy because of its demand implications. The signalling effect of the Plan will lead to a certain degree of the investment revival. Other policy measures will also lead to the investment revival. How long the slowdown will last is something that has to be seen, but the people who make studies in greater depth have been saying they expect to see the investment revival.
On a long-term perspective, how important it is to invest in healthcare, education and related sectors? The target to hike the Centre?s spending in healthcare (to 1.4% of GDP) is barely met.
From a macro-economic point of view, we tend to look at capital formation in a narrow, physical perspective, but economists have long recognised that investments in education and healthcare also play a very important role in promoting long-term growth capital and overall productive capacity of the economy.
Recently, the PMEAC has focussed on the feasibility of studying data, whether the CSO data or other economic data, with corporate financial data, especially of the capital goods sector companies, due to the wide differences. A committee is also looking into this apparent disconnect.
Principally, there is a difference between indicators such as the IIP and the corporate finance data. First, the financial statistics aren?t entirely production-based because these look at corporate performance from a number of factors, and production is one of them. Second, there isn?t a perfect match between companies for which you have financial statistics available and those picked up by the IIP, because the IIP covers manufacturing entities only. Since companies have much wider ambit, their statistics provide you numbers that may not reflect manufacturing alone. Trying to isolate them down to manufacturing requires a set of assumptions. Moreover, a lot of mining companies, such as Vedanta, is also into manufacturing. So it is not clear as to how much you allocate to mining and how much to manufacturing. There are also technical issues involved. We are separately getting experts to examine these suggestions. But there are some problems, as I said, the national account has requirements of data, which run into certain industrial classifications to which company data don?t readily lend themselves to.
So the process of reassembling or gathering data from other sources is being considered?
The national account has two elements to it. Part of our work is that we produce data according to an agreed methodology. The methodology is prepared after consultations with academic experts, users and professionals in the field of national accounts. For this purpose, the CSO has constituted the National Accounts Advisory Committee. If a methodological change is sought to be made, and if the general feeling is the change needs to be done, then that is accepted. But that?s usually done when the base revision takes place because we can?t use one indicator for this year and another indicator for the next year to compute the national account.
But why is the volatility more visible in the capital goods segment of the IIP?
IIP volatility has a long history. There is a problem in the methodology of the index. What is true, even having taken that into account, is that the IIP volatility seems to have increased particularly in capital goods from 2000 onwards. If you were to track capital goods on a long-term basis, using the old series and the new series, from 1990 to 2010, you will find that some time around 2001 and 2002, the growth rate went up and the volatility in the IIP capital goods segment went up very sharply. So the increase in volatility is, in some sense, linked to the underlying structural changes that are taking place in the economy when it enters the high growth phase. An expert group has been constituted to look into the revision of the IIP and it has also formed different sub-groups to look at different facets of how best to compute the data.
If you look at the first quarter IIP data, manufacturing and mining are negative, but the GDP numbers for these sectors are better. Why this discrepancy?
The IIP captures only the organised manufacturing, and what the GDP tries to work out is also what the unorganised sector is. What you get in IIP is an aggregate. When you say negative growth rate, it?s the aggregate growth. Underlying the aggregate growth rate are two-digit growth rates, some of which are negative and some are positive. The composition of the unorganised sector in the sectoral term is different from the composition of the organised sector. We don?t have the data for the unorganised sector. But what we have from the last base is the sectoral composition. So we use the same IIP series differently to construct the growth rate in the organised and different weights are used to construct the growth in the unorganised. And those are then put together, given the share of organised and unorganised in the manufacturing sector to give you the total weight. That?s why you get this discrepancy.
There are different ways to assess the well-being of people. Apparently we are now looking at models like estimating various possessions of households. What do you think is the most appropriate yardstick on well-being for contemporary India?
The NSSO surveys are done according to a certain calendar wherein certain themes are repeated in a predictable cycle. Now, one item which is being done for a long term is the debt and investment survey. Similarly, a land holding poll was done alongside the debt and investment survey. In 2002, it was decided to accompany these with the assessment of the farming community. Because you are doing the debt and investment survey, you actually get a survey on assets. So you can also use it for purposes of well-being calculations.
When you conduct the household consumption survey, people see it from various perspectives and interpret it differently, like whether poverty has grown or poverty has declined. What is your view on it?
You see the problem is it?s a single world which carries different meaning to different people. The Planning Commission was using the word ?poor? with a particular meaning over time. And that was simply a consistency exercise being done with reference to a particular norm, which evolved in the 1970s to see what is happening to the proportion of people who don?t meet that norm. Nobody has said that the people whom the Planning Commission has called poor are not poor, but that there were others who were poor too. A committee has been set up for this purpose headed by PMEAC chairman C Rangarajan. It may come up with a definition, which could be more acceptable in the current context. But there is nothing in this (the Planning Commission exercise) which was wrong; it?s just that different underlying notions were being used.
Based on your own household expenditure survey, don?t you want to make any assessment of whether poverty is declining, and at what pace?
I can?t, because whose poverty I would refer to? What the survey shows is that household consumer expenditure has grown over the years and it has grown in different classes. This has nothing to do with which class can be termed as poor. It has grown in various categories of consumption expenditure. It’s now for people to look at this data and other data as well to ask what we mean when we say ?poor?.
Later this month, you are having a four-day deliberation aimed at having an indicator to gauge the well-being and prosperity of a nation. What exactly are you planning to do?
This conference is part of a programme of research that the OECD initiated almost a decade ago. The origin of this is in a sense of discomfort with the manner in which we measure progress and well-being. At the moment, GDP represents a remarkable consensus on the global approach to measurement. Now what this conference represents is an attempt by the OECD to achieve some sort of a global coherence as to how can we broaden the measurement agenda beyond the GDP.
What is your forecast of inflation? Is the country going to see a high level of inflation for a long time, as even 7% to 8% of inflation has become a sort of norm now?
We need to work on inflation. There is a clear indication, as shown by the data, that there is a persistently high level of inflation for more than two years now, and in consumer goods it?s more than that. My perception is that inflation is partly influenced by the fact that non-consumer goods prices have collapsed due to recession. But if you exclude them, CPI inflation has been high, more or less on a consistent basis since 2006 or so. One indicator of the rise in inflation could be that the current level of dearness allowance paid to government servants have been brought to the level of 72%. The government employee salary was revised from January 2006. Between 2006 and 2012, the government has announced dearness relief in various installments. On an average, it?s approximately 10% a year. So we need to look at inflation at the policy level very carefully.
