'GDP forecast is only adding to confusion'

Raising questions about the new methodology pushing up the gross domestic product forecast to 7.4 per cent for the current fiscal, economists have said it is not in sync with key parameters such as tax collections and credit growth.

"The (GDP) data released yesterday has only added to the confusion that already exists," said a report by HDFC Bank.

Based on the new series, the Central Statistics Office on Monday projected an economic growth rate of 7.4 per cent for 2014-15, up from 6.9 per cent a year ago.

These projections have made India the fastest growing economy in the world, but have not gone down well with economists who find discrepancy in the data, based on which the government has projected higher GDP growth.

Credit rating agency Crisil observed in its report that some ‘high frequency indicators go out of whack’ as credit growth and service tax collections are not in tune with the CSO's growth projections.

A report prepared by ING Vysya Bank said: "The high growth figures do not corroborate with the developments on the ground.

“The divergences between the high frequency data and GDP growth under the new methodology are blatantly stark.

"Muted corporate performances, worsening asset quality of the banks, weak auto sales and overall industrial production along with non-oil non-gold imports all have been pointing towards a sluggish recovery."

Icrier economist Abheek Barua said: "All the economists have been grappling to interpret the data.

“So far it is seen in conjunction with the multiple indicators seen on the ground.

“I think, slowly we will get used to this new method of data."

Aided by 7.5 per cent expansion during October-December, the Indian economy will see the fastest pace of growth since 2010-11, when it had achieved a growth rate of 8.7 per cent.

The higher GDP growth forecast for the current fiscal has been estimated after the government revised the base year for computation to 2011-12 from 2004-05.

According to the Crisil report, "Credit growth does not sync with the sharp pick-up in GDP growth now shown for this fiscal.

“Credit growth is expected to potter around at 12-14 per cent compared with 14.3 per cent as of fiscal 2014-end."

Similarly, it said the growth in service tax collections slowed 10.2 per cent in the year so far (April to December), compared to 19.2 per cent in the same period of fiscal 2014.

Last month, the Statistics Ministry had pegged the previous year's growth at 6.9 per cent as against 4.7 per cent estimated previously, a revision which led to some economists, including Reserve Bank of India Governor Raghuram Rajan seeking more clarity on the data.

"We do need to spend more time to understanding the GDP numbers," Rajan had said on February 3 after releasing the bi-monthly monetary policy of the central bank that retained the forecast of 5.5 per cent GDP (calculation based on old method) growth in 2014-15.

"We will be watching the February 9 release with great care and dwell deeply into what we see there. At this point this is premature to take a strong view based on these GDP numbers," he had said.

Under the new series, the GDP growth rate has been revised upward to 6.5 per cent in April-June Quarter of this fiscal from 5.7 per cent estimated earlier with 2004-05 base year.

Similarly, the economic growth in July-September was also revised upward to 8.2 following change in base to 2011-12 from 5.3 per cent on 2004-05 base year.