A new set of data on growth in gross domestic product (GDP) has shown a substantial increase in growth, particularly in 2013-14. However, three days after the revision in data and a day ahead of the central bank's monetary policy review, Chief Economic Advisor Arvind Subramanian tells Indivjal Dhasmana the new numbers have puzzled him, as these aren't corroborated by other data, including those showing a decline in imports, high interest rates and outflow of capital. He adds more data should be monitored before using these for policy-making. Excerpts:
Are the new GDP numbers on a par with international standards?
Let me begin by congratulating the Ministry of Statistics and Programme Implementation for having done an outstanding job of revising the GDP estimates, as well as the National Statistical Commission of India for having overseen it. The improvement in data, methods and analysis are simply superb and on a par with international standards.
Let me also say India is perhaps unique in that GDP revisions result in lower numbers rather than the typically high upward revisions (as in China or Nigeria). The key 2011-12 estimate of GDP is actually two per cent lower than previously estimated.
Will these numbers affect our fiscal deficit ratio?
It is noteworthy that the latest estimate of nominal GDP for 2013-14 is almost identical to the previous one. That means provided GDP growth for 2014-15 isn't very different from what we currently expect, the fiscal deficit or current account deficit ratios should not change significantly because the denominator, the nominal GDP, will not be very different.
How do you assess the new GDP numbers, which suggest the economy didn't fare as badly in 2012-13 and 2013-14 as was thought earlier?
I am puzzled by the new GDP growth numbers. The revised numbers show GDP growth rose from 4.7 per cent to 5.1 per cent for 2012-13 and from five per cent to 6.9 per cent for 2013-14. This means acceleration in GDP growth of 1.9 percentage points in 2013-14, just by comparing the new numbers across time. This is mystifying because these numbers, especially the acceleration in 2013-14, are at odds with other features of the macro economy.
The year 2013-14 was a crisis year - capital flowed out, interest rates were tightened and there was consolidation - and it is difficult to understand how an economy's growth could be so high and accelerate so much under such circumstances. Also, look at the other data -in 2013-14, import of goods apparently declined 10 per cent; this, even after accounting for the squeeze on gold imports, is high.
Typically, growth booms are accompanied by surges in import, not declines. Similarly, data show real gross capital formation declined in 2012-13 and grew at a modest three per cent in 2013-14. It is not usual for growth to accelerate so rapidly in this situation. Another puzzle is there was actually a downward revision in the GDP deflator when, in fact, there was high inflation.
Besides the headline number, mining and manufacturing are shown to have increased 5.4 per cent and 5.3 per cent, respectively, in 2013-14, against contraction in the previous series. Does this mean we were barking up the wrong tree, as there was demand for a rate cut by the Reserve Bank of India to boost manufacturing?
I am puzzled by the GDP growth numbers and, consequently, all the constituent elements that went into constructing it, including the sectoral composition of GDP.
Please don't get me wrong. I am not saying these estimates are wrong in any way, only that these bear further scrutiny. Until then, the whole narrative of a slowdown in 2012-13 and 2013-14 is still open.
What will be the impact of these numbers on economic policies?
We have to be very careful in using these numbers for policy-making. To get a better sense of the policy implications, we will need more data and examine what we have more closely.
Will your team use GDP at market prices or GDP at basic prices to give a projection of economic growth for 2015-16 and a review of the economy for 2014-15 in the Economic Survey?
We don't know that. We will take a call on the matter in a few days. We will get some ideas and more clarity when the advance estimates of GDP numbers for 2014-15 and the economic growth figures for three quarters are released on February 9.
