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Resource centre on India's rural distress
 
 

A self-goal for India -Santosh Mehrotra
-The Hindu

There are substantive reasons for the questions being raised about the new GDP back series

Without in any way impugning the integrity of the Central Statistics Office (CSO), most knowledgeable people are asking: if most important indicators of the Indian economy were better in 2004-2014, how is the GDP growth rate higher in estimates just released (7.4% per annum since 2014 and only 6.7% per annum in 2005-2014)? This is curious also because the Mundle expert panel, which was constituted to prepare the back series under the revised methodology, had not come up with the counter-intuitive estimates that have just been released. They estimated the average GDP growth at market prices at 8.37% (2004-05 to 2008-09), and then 7.69% (2009-10 to 2013-014).

Three changes occurred in the revision that was first announced in 2015: first, in the base year; second, in the methodology from GDP at factor cost to GDP at market price (this is the international norm and the basis of the current government’s claim that this is what CSO has followed); and third, in the method of estimating company output/revenue, which has been done in a much more detailed manner using new data collected by the Ministry of Corporate Affairs (MCA 21).

Questions over the new series

MCA 21 is available since 2008 but is probably not available prior to that. This could be one source of the problem. Another possible source may be that the CSO used a deflator which is different for the back series. But questions arise over the new GDP series for the following substantive reasons.

Agricultural growth rates at constant prices were much higher from 2004-05 to 2013-14 than since then. Two back-to-back drought years (2014 and 2015) notwithstanding, policies have not been exactly supportive. Why else are farmers agitating year after year? The Index of Agricultural Production, with a base of 100 for the triennium ending 2007-08, had risen to 129.8 in 2013-14. But after falling, it barely recovered to 130 in 2017-18. Agriculture, like the non-agricultural informal sector, collapsed first after demonetisation and then after a poorly implemented Goods and Services Tax. Both measures affected output as well as jobs, especially in the unorganised sector which constitutes nearly half of GDP and half of all exports.

Exports have performed much worse in the last four years than over the preceding 10 years. Exports were only $50 billion in 2002-03, but had risen to $250 billion in 2010-11, and reached $315 billion in 2013-14. They have not recovered to that level even in 2017-18.

Investment to GDP is the most egregious source of difference in economic performance between the two periods. In 2003-04, India’s savings rate had risen from 9.5% of GDP in 1950-51, and stood at 25.9%. It rose sharply thereafter to peak at 36.8% — precisely because of a rise in per capita income growth — to a level unprecedented in India’s economic history, and not achieved since.

This rising savings rate contributed to an unprecedented increase in the investment to GDP ratio, which peaked at 36.8% in 2007-08, having risen from 23.8% of GDP in 2002-03 . Then the investment to GDP fell in the wake of the global economic crisis. But in 2010-11, it still stood at 34% of GDP. In the 2011-12 series, the new government, having inherited an investment/GDP share of 31.3% in 2013-14, allowed it to fall to 30.4% in 2014-15, to 29.3% in 2015-16, to 27.1% next year (provisional estimate), and 26.4% in 2017-18. It is investment that mainly drives growth.

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