Thursday, 2 March 2017

The great GDP fudge

The great GDP fudge; Same data; Opposite conclusions.
  • GDP growth in 2013-14 was 4.7%, as per old series. 
  • GDP growth in 2013-14 was 6.9%, as per new series rolled out by Modi Administration.
  • This had meant that India was the second fastest growing economy, after China. This was in dissonance with the actual macro-economic reality.
  • Under the old method, GDP was calculated at factor cost; now it will be done at consumer prices. Factor cost includes wages, profits, rents and capital - known factors of production. The consumer price includes taxes that are paid to the government. 
  • This resulted in share of the industrial sector moving up by 5.6 points from 26.1% in the old series to 31.7% under the new series, for 2013-14.
  • Inflation needs to be adjusted to arrive at GDP at constant market prices. GDP deflator is the ratio of nominal to real GDP. The decline in inflation measured by the GDP deflator has turned the modest deceleration in the growth of GDP at current prices into higher growth in GDP at constant prices.
  • The statistical picture being presented doesn’t reflect ground realities.
  • In Sep 2016, India’s imports have fallen for 20 straight months. In April 2016, India’s imports touched a six-year low. Exports are still at 2011 levels, down significantly from the 2013 peak. Industrial production which creates real jobs in the economy is actually shrinking.
  • There are visible signs of widespread distress in rural areas; the most visible manifestation is the rural migration to cities in search of jobs. Yet, the agriculture data suggests an optimism that flies in the face of the reality.
  • Economies don't shift trajectories easily and quickly. India has shown the ability to be on a high trajectory before. The decade-long UPA rule witnessed growth, averaging 7.8%.
  • Government claimed savings of Rs 15,000 crore in the LPG subsidy scheme due to Aadhaar based DBT. Later CAG pointed out that only Rs 1,764 crore (~10%) of the subsidy savings was due to DBT and the remaining 90% of the savings was due to the fall in global oil prices. 
  • The government and its CEA (Chief Economic Adviser) were simply disingenuous and resorted to such misleading claims to falsely justify their decision to table the Aadhaar bill as a money bill and pummel it through Parliament. 
  • With new GDP series Manmohan Singh government's growth for 2013-14 would have been a good-looking 6.9% instead of the dismal 4.7%. 
  • But if you remove this 2.2% bonus that came from changing the calculation method and then the discrepancies portion of GDP growth which accounts for a massive 3.2% and you’ll find that the GDP growth for the fourth quarter of 2016-17 is just 4.7% in place of much boasted 7.9%.
  • It is easy to bump up consumption (largely informal, hence poorly measured) numbers or 'discrepancies' to boost growth. It's tough to hide actual figures. The most frightening is a Rs 17,000 crore-plus drop in investment, which reflects a lack of confidence in Modi's India. Take away the rubbish in data, our actual growth rate is around 4%, about half of what is being claimed. 
  • Fudging economic data will lead us to nowhere and impact credibility badly.

Spin is a powerful tool in both cricket and politics but not in economics. 
In the land of the blind, the single eyed man is the king.

My View:
For developing economies below 5% growth is 'struggling', 6% growth 'satisfactory' and 7% growth is 'good'. Govt modifying GDP growth computations thus projecting higher growth and reduced inflation and presenting our 'struggling' economy as 'good' economy is outright cheating. However lending agencies have their way of assessing the realistic situation. Despite high voltage campaign of racing economy by Modi & Co, ratings haven't been upgraded and FDIs stagnant. Despite favorable oil prices benefiting India to the tune of over Rs.2 lakh crores for the past 3 years in a row, ground situation remained alarming with fragile banks indicating gross economic mismanagement by Modi & Jaitley during past 3 years. Government publishing false and misleading reports dents our credibility as a nation. Modi's noise of hard work and rapid progress have turned out shallow. Excepting visiting half of the world with slogans & speeches nothing has happened. Our per capita income is $1,700 pa only is way below poverty eradication level of $6,000. With realistic GDP growth below 5% and retail inflation at more than 7%, it is long way to prosperity and poverty eradication. Urgent need is fiscal reforms, debt reduction, corruption control, enhance tax realization, and many more consistently for several years. Instead Modi attempting demonetization hoping as a single pill to solve all economic ills has turned out a blunder & plunder, flabbergasted the whole India and world. Ignoring pitfalls of struggling economy without any corrective steps and pursuing fancy things and day dreaming everything will be better tomorrow will only end up in utter chaos and fiasco. Lesson to Modi: There are no shortcuts. 

Emulating Chinese system of inflating economic data does no good. When drop in figures are to be admitted, at a later stage, it would be disastrous.

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