The new series of GDP data needs to be made available for past years also by CSO in order to put to rest the controversies surrounding the parameters like GDP deflator. IIP series has to be recast with 2011-12 base from the current 2004-05 base
The dichotomy between growth of value added in manufacturing and industry indicated in the new series of GDP (base year 2011-12) and the physical output figures shown by the IIP series (base year 2004-05) became an area of concern with the release of latest industrial production data. The advanced estimates of GDP for FY16 has put the growth of GVA in manufacturing and industry at 2011-12 prices at 9.5% and 7.3% respectively. IIP data have put growth of manufacturing in FY16 at 2% and growth of industrial production at 2.4%.
Keeping in view the controversy surrounding the estimated GDP deflator in measuring the real growth rate of GDP and associated indicators and enhancement of Gross Value Added (GVA) due to decline in prices of raw materials, the sharp fall in physical output data poses a big challenge for the growth potential of critical industrial segments. It may also be mentioned that core industrial growth data comprising around 38% of industry (coal, oil, natural gas, fertiliser, refinery, cement, steel and electricity) have put the growth rate of these core sectors at only 2.7% in FY16.
GDP growth figures indicate that GVA of the construction sector has grown by 3.7% in FY16 against 4.4% in last year. This growth must reflect itself in a subdued growth of sales of TMT bar in the country. On the other hand the total production of TMT from mini and other producers has dropped by 3.5% and those from integrated producers have gone up by a whopping 23%. In most of the countries one of the standard tools measuring growth of construction sector is provided by million square feet constructed area or new construction starts. Unfortunately no agency in India provides this data to directly measure the performance of construction sector.
Manufacturing sector that occupies around 75.6% share of industrial production has a few major steel-intensive sub segments like machinery and equipment (3.8% in manufacturing), electrical equipment (2% in manufacturing), motor vehicles and equipment (4.1%), other transport equipment (1.8%), fabricated metals (3.1%), furniture manufacturing (3%) and basic metals (11.3%). The predominance of unorganised sector in each of these sub segments makes it rather impossible to come to a correct assessment of their true contribution to total output and value addition in the corresponding sector.
The estimates of the unorganised component of the segment based on general trend of other big players in the segment may conceal the specific problems faced by them in increasing production or achieving market realization and may either overstate or understate the impact. Our inability to capture the trend in unorganised segments in the recent past has accentuated the disconnect between the published indicators and the actual state of the specific
A few issues have therefore become extremely important. The new series of GDP data need to be made available for past years also by CSO in order to put to rest the controversies surrounding the parameters like GDP deflator. IIP series have to be recast with 2011-12 base from the current 2004-05 base. One aspect that requires maximum focus is the perennial problems to compile data, physical or financial, for the informal and unorganised sector. As per the government statistics, this sector provides the growth engine for the country’s growth indicators. There is no standard method to capture its actual behavior and is therefore, left to guesstimates, approximations and hunches based on broad market trends.
The MCA data on value additions also fail to capture behaviour of unorganised sectors as most of them are under no mandatory regulations to furnish production, sales figures to any designated authority. As in some of the critical sectors, steel being one of them, the predominant role played by them in influencing the direction of the sector, remains undocumented. In the absence of a robust system to substantially improve the present data collection methods, periodic surveys of the concerned sector are to be undertaken by the government on an urgent basis. The associations of the respective sectors must appreciate the value of data compilation of their member units to support their various recommendations for suitable policy support from the government.
The author is DG, Institute of Steel Growth and ]Development. Views expressed are personal.