On the Republican party’s campaign during the US presidential election in 2008, the Democratic party’s candidate, Mr Barack Obama, said, “you can put lipstick on a pig, but it is still a pig.” That crushing put down became instantly famous. According to Wikipedia, the phrase has been in use since at lease the middle of the twentieth century.
I was reminded of the phrase when I heard the spin that government officers put on the NSO’s estimates on India’s national income released on February 28, 2023. Numbers do not lie, interpretations of the numbers lie — as we found in the weeks following the presentation of Budget 2023-24. In her Budget speech, the Hon’ble Finance Minister projected a GDP growth of 7% in 2022-23. Since then, government officers, including the Chief Economic Adviser, have repeated that claim. It may well turn out to be correct, but behind the alluring number of 7% lies the cold fact that, in successive quarters of 2022-23, the output has recorded a declining growth rate. According to the NSO’s estimates, the growth rates in the first three quarters, year-on-year, are 13.2, 6.3 and 4.4%.
In my view, neither the y-o-y quarterly estimate nor the sequential quarterly estimate of the growth rate reflects the true state of the economy. Ultimately, it is the “output” of all our endeavours in each quarter that will matter. The NSO has measured the value of the quarterly output in terms of Gross Value Added (GVA) and Gross Domestic Product (GDP). Please see Table:
Remember, these values are absolute values, not rate of growth over the quarter a year ago or over the previous quarter. If the economy was growing at a brisk pace, there is no reason why the value of the output in a quarter should be less than the value of the output in the previous quarter or the preceding quarters. For example, if the manufacturing sector was in good health, employment was maintained and demand was robust, why should the value of the output of the manufacturing sector decline from Rs 6,39,243 crore in Q1 to Rs 6,29,798 crore in Q2 to Rs 6,14,982 in Q3 ?
Note also that the value of the output of ‘Electricity, Gas and Water’ (activities closely associated with ‘Manufacturing’) has declined in successive quarters.
Numbers don’t lie
If we look at the economy in terms of Gross Domestic Product, Government Final Consumption Expenditure has not been able to maintain its pace. Gross Fixed Capital Formation has been up and down in the three quarters. Exports and Imports are stagnant. There is hardly any indication of strong growth.
Another set of worrying numbers is Private Final Consumption Expenditure. Ordinarily, consumption jumps from Q1 to Q2 to Q3 by about Rs 3,00,000 crore in each quarter. In 2022-23, the increase in private consumption has been barely Rs 1,21,959 in Q2 and Rs 1,68,005 crore in Q3, pointing to lukewarm demand. I believe that the fear of inflation, layoffs and retrenchment has constrained private consumption.
It is not difficult to estimate the GDP growth in Q4 which will end on March 31, 2023. If the best estimate of annual growth in 2022-23 is 7%, the ‘space’ that is available in the fourth quarter is only between 4.1 and 4.4%.
The economy is facing strong headwinds: recession, inflation, tight monetary policies, protectionism and high fuel prices in advanced economies; the Ukraine-Russia war; sanctions that disrupt supply chains; domestic inflation; rising interest rates and EMIs; loss of jobs and unemployment; and political uncertainty. No amount of brave talk will hide these realities. The outlook for 2023-24 is not bright.
Nevertheless the chorus continues. It is disappointing that the RBI has joined the cheerleaders. According to the RBI’s February bulletin, the Indian economy will “decouple from macroeconomic projections of current vintage and also from the rest of the world” — whatever that purple prose means. Further, according to the RBI, the Budget for 2023-24 is “the instrument of decoupling and raising India’s growth prospects.” This is from the RBI that finds itself unable to decouple from the U.S. Federal Reserve System (the Fed) on monetary policy!
If you had read my three columns on the Budget (The Indian Express, February 5, 12 and 19, 2023), you will agree with me that the Establishment is putting lipstick on the numbers, but they are still depressing numbers.