february 21, 2015

GDP Numbers: More Puzzles, More Confusion

The Central Statistics Office needs to do a lot of convincing to establish the accuracy of its new statistics.

f the National Accounts Statistics with 201112 as the new

base year, which were released by the Central Statistics Office
(CSO) in end January, raised as many questions as provided
answers on the measurement of the size of the Indian economy,
the advance estimates of national income in 201415 put out 10
days later cast a fresh set of doubts on the accuracy of the gross
domestic product (GDP) numbers for the current fiscal. The CSO,
based on new estimates of growth in the first three quarters,
and on projections for the third quarter, says that 201415 will
end with India showing a growth in real terms of as much as
7.4%. This will follow on the 6.9% growth in 201314 according
to the CSOs revised numbers, which too seemed out of touch with
reality. The reason why the CSOs advance estimates for 201415
have been viewed with even greater scepticism is that on the
ground there are no visible signs of growth acceleration, let
alone of a boom as these growth rates should imply.
Important macroeconomic indicators run counter to the CSOs
numbers for the current fiscal year. The index of industrial
production (IIP) grew by only 2.1% in AprilDecember 2014, yet
GDP in manufacturing is projected to grow by as much as 6.7%
in the entire year. Exports in dollar terms have grown by a meagre 2.4% during April 2014January 2015 as against 6.4% during the corresponding period of 201314. The performance of
corporates, as measured by net sales and profits, has also been
disappointing so far.
There are other sectoral growth numbers which are very puzzling. Finance, real estate and professional services (with a
share of 21% in total gross value added or GVA at factor cost) are
projected to grow by 14% in 201415, building on 8% growth in
201314. But bank credit by the scheduled commercial banks
(one important indicator of activity in the financial sector) has
been increasing at a slow pace and has slowed down since last
year: 6.6% until early January 2015 in the current fiscal as
against 9.7% in the corresponding period of 201314.
The CSOs estimates also say public administration, defence
and other services (share of 13% in GVA) will have expanded by
8.8% in 201415, an acceleration over an 8% growth in 201314.
Yet, growth in public expenditures has been niggardly during
201415; total central government expenditure rose by only 6.2%
in AprilDecember 2014. The only major sector where there is
some correspondence between the CSOs advance estimates and

Economic & Political Weekly

EPW

february 21, 2015

vol l no 8

ground realities is agriculture: growth in real terms is to plunge

from 3.8% in 201314 to just 1.1% in 201415.
Most significant perhaps is that the new series of national
accounts shows that the rate of investment or the gross fixed capital formation (GFCF), as a percentage of GDP, has steadily fallen,
from 33.6% in 201112 to 31.4% in 201213, to 29.7% in 201314
and finally to 28.6% in 201415. These levels of the rates of fixed
investment are not higher than the estimates in the older series
of national accounts which had 200405 as the base. Can growth
accelerate even as the rate of investment falls? It could if capacity
utilisation shoots up, but there is little evidence of that happening.
All these numbers show that neither the macro indicators nor
the sources of growth justify the buoyancy in the CSOs advance
estimates of GDP growth in 201415. Senior officials of the CSO and
the National Statistical Commission have correctly pointed out that
GDP measures value added and not volumes, and that therefore
higher GDP growth may reflect improvements in efficiency rather
than an expansion of output. True, but if the GDP growth of 6.9% in
201314 was, as has been suggested, a result of greater efficiency in
the economy, then does the even faster growth of 7.5% in 201415
represent a further quantum improvement in efficiency? This is
highly unlikely. The absence of any visible signs of either productivity improvements or volume increases in any major sector therefore makes these new GDP numbers a very puzzling set of statistics.
GDP growth in current prices will, according to the CSO, actually
slow this year: 11.5% in 201415 vs 13.6% in 201314. Simultaneously, inflation has declined in the current fiscal, in a few sectors
prices have even fallen. The decline in inflation as measured by
the GDP deflator converted this modest deceleration in the
growth of GDP at current prices into an acceleration in GDP growth
at constant prices. In the end, the reason for the perplexing estimate of faster real GDP growth in 201415 may therefore be purely
statistical. If so, it was important while putting out such startling
numbers for the CSO to explain the statistical patterns and clear the
inconsistencies between growth in value added and volumes. An
explanatory volume has been promised but much confusion could
have been avoided if the CSO had come out with the details alongside the release of the advance estimates for 201415. Lies, damn
lies and statistics has always been an adage that unfairly belittles
the valuable discipline of statistics. The casual release of statistics as
of the GDP for 201415 does not, however, aid the cause of statistics.
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