The Super GDP Man

The Indian economy is big and

shiny. But is it really as strong as it
looks?
Srikanth Srinivas
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A sked whether China’s economy

would surpass that of the US in the

foreseeable future, a Chinese official
reportedly responded that of the past 10
centuries, China had the highest GDP for
nine. It is not clear whether India could make
a similar claim, but given the focus on
national income — as represented by gross
domestic product or GDP — it is becoming
something of an obsession.

The recent fiasco over the release of what

appeared to be flawed GDP, or gross
domestic product, data — the official
explanation was that it was a minor error in
the formula used for some calculations —
makes one wonder about the chinks in the
hi-tech machinery that the Central Statistical
Organisation (CSO) uses, though.

The super-fast revision (it took just a day,

compared to the usual time-frame of several
weeks) didn’t make things better. Now,
analysts and economists are looking at the
government’s data releases much more
carefully. The event has opened up a
Pandora’s Box — though most will not
acknowledge it — of questions about how
the data is collected, the kind of data that is
used and the methodology of calculating our
national income statistics.

In recent weeks and months, Businessworld

has pointed out perceived inconsistencies in
the various numbers on inflation, industrial
production and others; the data in one
segment does not jell with that in other
segments. Yet, we have continued to believe
in their accuracy in the absence of
alternatives to government sources for the
information.

At a time when the global economy is

slowing just when we thought it was
recovering, can we assume the Indian
economy will chug along on its merry way
unaffected? The explanation that most
people buy — and it is true to some degree
— is that India’s growth is more dependent
on its domestic economy than on the global
economy. But how does it all add up?

By The Numbers
“Marry your cleaning person, and you will
make GDP drop,” said French demographer,
anthropologist and economic historian Alfred
Sauvy (who is also reputed to have coined
the term ‘Third World’), alluding to the many
types of work that do not get included in
national income statistics. There are a
number of services that may not be included
in our assessments of the contribution of
services to GDP, whose contribution is
almost 60 per cent.

Click here to view enlarged graph

“There are no good indicators that capture

services side the way IIP (index of industrial
production) does on manufacturing activity,”
says Sonal Varma, vice-president and chief
economist at Nomura Securities in Mumbai.
“We use a lot of anecdotal information, like
port traffic, freight rates, etc., as proxies.”
She is referring to firm-level data from
company balance sheets, for example, or
the number of mobile phone connections
added each month.

Since much of the data is estimated, there

are the revisions and adjustments; so often
there is an X-factor, idiosyncratically called
‘discrepancies’. What this means is that
whatever cannot be accounted for is
included in the catch-all category of
discrepancies that is corrected once more
complete data is available. But the scale of
discrepancies can often be worrisome.
Click here to view enlarged
image
“We also have other
indications from business expectations
surveys carried out by the Reserve Bank of
India (RBI),” points out Deepali Bhargava,
economist with ING Bank in Mumbai. “There
is also the annual survey of industries for
assessing growth in manufacturing.” Yet, the
data can often produce the occasional
bouncer: for instance, going by past trends,
Bhargava found the fall in fixed investment in
the Q1 FY11 GDP data surprising.

Then, there is data quality: most economists

tend to rely on the production side of the
data — the IIP for instance — more than
they rely on the expenditure side (where the
recent GDP data problem lay), which
showed a fall in GDP growth to under 4 per
cent — compared to 8.8 per cent on the
production side. The correction/revision took
it back up to 10 per cent.

The Political Economy of Growth

For the new chief statistician of India, T.C.A.
Anant, the errors on the GDP numbers were
a rude welcome: he had been in the job for
less than three weeks. As with most
controversies, there are whispers of
conspiracy; one extreme thought is that the
government may have been massaging the
numbers a little all along, but this time, they
missed the cumulative effect.

Given the government’s current troubles —

Maoist insurgency, reputational damage
from the preparation for the Commonwealth
Games, legislative battles with the political
opposition — good news on the economy is
almost a must-happen. Already, it is on the
backfoot on inflation, even though the high
levels stem from many factors beyond its
control.