"The estimated “evacuation (defecation) rates” are 0.3 kilograms per day for goats and 0.8 kilograms per day for sheep. The study, titled “Positive Environmental Externalities of Livestock in Mixed Farming Systems of India,” was conducted jointly by the Central Institute for Research on Goats, in Makhdoom, Uttar Pradesh, and the National Center for Agricultural Economics and Policy Research in New Delhi. With all those “droplets” added in, the value of India’s livestock sector in the new GDP series is 9.1 billion rupees, or $150 million, higher than it was in the old series." Wall Street Journal on India's GDP RevisionsAnimal droppings (BS) is just one of many innovations of Central Statistical Office (CSO) that are being used to support India's claim to be growing faster than China. Until early February, when CSO changed the way it measures economic activity, India was enduring its weakest run of growth since the mid-1980s. Now it is outpacing China, having grown an annual 7.5% in the fourth quarter of last year, reports Business Standard.
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| Indian Livestock GDP Calculations. EOG=Edible Offals, Glands. Source: CSO Via WSJ |
While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".
Based on the latest methodology, it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?
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| India GDP Revisions. Source: Financial Times |
The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:
1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?
2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures? For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.
3. How can growth accelerate amid financial constraints depressing investment in India? Indian companies are burdened with debt and banks are reluctant to lend.
4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?
Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.
Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated. Picketty writes as follows:
"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "
T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”
Related Links:
Haq's Musings
Is India Fudging GDP to Look Better Than China?
India's IT Exports Highly Exaggerated
India-Pakistan Economic Comparison 2014
Pakistan's Official GDP Figures Ignore Fast Growing Sectors
Challenging Haqqani's Op Ed: "Pakistan's Elusive Quest For Parity"
State Bank Says Pakistan's Official GDP Under-estimated
Pakistan's Growing Middle Class
Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued
Fast Moving Consumer Goods Sector in Pakistan
3G-4G Roll-out in Pakistan
49 comments:
http://www.business-standard.com/article/pti-stories/don-t-get-disillusioned-support-modi-ratan-tata-to-india-inc-115041700862_1.html
Don't get disillusioned, support Modi: Ratan Tata to India Inc
The comments come at a time when various business leaders have talked about a need for the new govt's reform measures to start reflecting on the ground
You may recall that during the days of Emperor Rajiv Gandhi he was brought figures of the reserve food stocks. He exploded at what he thought was a minimal quantity. The stats people went away, did a rope trick, and came back to him with an inflated figure. The emperor was satisfied.
Now that the Hindu Raj in India is in the process of banning cow ( i.e. cows, bulls, buffaloes - and soon to include even goats and chickens in Maharashtra)slaughter - violating a human right of being able to eat a food consumed across the globe for many millenia, THERE WILL BE EVEN MORE SHIT FOR THE SAFFRONITES TO PICK UP RIGHT ACROSS!
Shifting this thread slightly, the Union Finance Minister, Arun Jaitley has solved the problem of Hindu attacks on Christian institutions and personnel by claiming that the attacks have been carried out by non-Hindus - meaning Muslims. He entered the cabinet not by winning a Lok Sabha seat - he in fact lost - but via the back door of a Rajya Sabha nomination.
On popular demand, I post a graph of the difference between the GDP data and the RBI Balance of Payments (BoP) data. This is referencing my posts on how the Q4 data has been ‘fudged’ and India is likely to have seen GDP contraction (in real terms, that is, accounting for inflation). Read: Has India Plunged Into Recession? GDP Data Fudge Reveals Details and India *HAS* Seen Negative GDP Growth, BoP Confirms Data Fudge
image
(Click for a larger picture)
As you can see the March 2012 quarter is very strange – Exports are larger in the MOSPI figure than the BoP figure tells us, and GDP imports are much smaller than BoP data.
But there’s an important takeaway.
Exports may have been understated in GDP figures in the first three quarters of this year, by about 65,000 cr. The discrepancy in Q4 is about 87,000 cr. So the difference, for the whole year, is a manageable 22,000 cr. You might be able to explain that by saying that they’ve stuffed the corrections into the last quarter. (I don’t believe that – they keep revising earlier quarter numbers with every GDP release – so if you update the past figures, you’re not allowed the excuse that you stuff corrections into the last quarter).
But Imports remain a mystery. Even if you account for stuffing (Imports have been overstated in the GDP in the Sep and Dec quarters) the difference for the full year, between the MOSPI GDP Data and the RBI BoP, is about 120,000 cr., which is a fairly large number to miss.
The difference in imports is so large that even if you rejig for past quarter misses, it will still result in much lower GDP growth. Reworking the numbers for a (-120,000 cr.) net export figure – negative because we imported more than we exported – we still get a nominal growth number of about 4.5%. Subtracting inflation of 7% and, like we’ve talked about, a GDP contraction. Even if we eke out positive growth for the year, It’s not looking good for the last quarter.
I’ve also been told that I’m being silly for believing any of the numbers in the GDP releases, since they are largely figments of people’s imagination. While I hope that is not true, it’s not a theory that can be written off, so please use appropriate pinches of salt.
http://capitalmind.in/2012/07/gdp-data-fudge-vs-bop-recent-differences/
Riazbhai, what is the correct figure of exports for India? They are inflating IT figures so they must be lower and then how much are the imports? I found out exports $312 billion (inflated) and imports $500 billion on paper. That is -$188 billion and then you have to adjust for inflated numbers.
So there is at least $240 billion negative every year - how does the economy survive?
http://indianexpress.com/article/opinion/columns/no-proof-required-new-gdp-is-for-real/
This comes from a newspaper who has gone so far as to portray 2 different schools in 'Modi's' Gujarat as an evidence of religious discrimination..neither you nor me is an economist..its up to you to review this article..
India survives on large external capital inflows in the form of investments and debts in the post-Cold War era with the West boosting India against China and Pakistan.
Indian economy would collapse without such inflows.
Read the following to get a sense of the magnitude of foreign capital inflows in India:
"Strong capital flows to India in the recent period reflect the sustained momentum in domestic
economic activity, better corporate performance, the positive investment climate, the longterm
view of India as an investment destination, and favourable liquidity conditions and
interest rates in the global market. Apart from this, the prevailing higher domestic interest
rate along with a higher and stable growth rate have created a lower risk perception, which
has attracted higher capital inflows. The large excess of capital flows over and above those required to finance the current account deficit (which is currently around 1.5% of GDP) resulted in reserve accretion of
$110.5 billion during 2007/08. India’s total foreign exchange reserves were $308.4 billion as
of 4 July 2008."
http://www.bis.org/publ/bppdf/bispap44m.pdf
"Gross capital flows have increased nearly 22 times from $42.7 billion in 1991-92 to over $932.3 billion in 2010-11. As a share of GDP, this amounted to an increase from 15.5% in 1991-92 to 55.2% in 2010-11. Much
of the increase in financial integration occurred between 2003-04 and 2007-08. Given the
impressive economic performance indicated by close to 9% growth rate, higher domestic
interest rates and a strong currency, India's risk perception was quite low during 2003 to 2007.
Furthermore, this period was associated with favorable global conditions in the form of ample
liquidity and low interest rates in the global markets—the so-called period of Great Moderation."
http://www.adb.org/sites/default/files/publication/30234/management-capital-flows-india.pdf
[Faisal: "So there is at least $240 billion negative every year - how does the economy survive?"
Riaz: "India survives on large external capital inflows in the form of investments and debts in the post-Cold War era with the West boosting India against China and Pakistan.
Indian economy would collapse without such inflows"]
Are you saying that western companies are investing 240 billion in India to boost it against China and Pakistan?
I thought any investor would be looking to get a healthy return on their investment whether it is China or India. This boosting that you talk about does not make any sense.
You also cite ADB:
"Gross capital flows have increased nearly 22 times from $42.7 billion in 1991-92 to over $932.3 billion in 2010-11. As a share of GDP, this amounted to an increase from 15.5% in 1991-92 to 55.2% in 2010-11. Much
of the increase in financial integration occurred between 2003-04 and 2007-08. Given the impressive economic performance indicated by close to 9% growth rate, higher domestic interest rates and a strong currency, India's risk perception was quite low during 2003 to 2007.
Is the above data regarding GDP growth of 9% correct then or is it fudged?
Why would anyone invest in India, including locals, if the economic data is hyped? Sooner or later the house of cards will come crashing down don't you think?
Revisiting your premise.
1. Indian IT/BPO service exports of approximately $75 billion are hyped up as indicated by a GPO study that you commonly cite.
2. Indian GDP figures are inflated.
3. Indian exports, currently $315 billion, are fudged
Once again let us assume your premise is well grounded explain why then over the years, the Indian economy has come crashing down?
Quite to the contrary, the very steady foreign exchange reserves are at a record $322 billion now.
IMF/World Bank/ADB have forecast GDP growth of 7.2-7.9% in the next five years.
Several Industrial Corridors, with collaboration from Japan, UK and US, across India:
DELHI MUMBAI CORRIDOR
MUMBAI BANGALORE CORRIDOR
CHENNAI BANGALORE CORRIDOR
AMRITSAR DELHI KOLKATA CORRIDOR
With a total investment of $500 billion.
JIgar: " Are you saying that western companies are investing 240 billion in India to boost it against China and Pakistan?"
Western capital flows, including private investments, are guided by US and its western allies policies toward the recipient countries.
Example: Russia and East Europe were excluded as destination of western capital during the cold war. After the end of cold war, Russia became a part of "BRIC", as did China and India.
Now Russia is back on on "bad guys" list and western capital inflows have dried up again.
Iran, a part of group of N-11, is also cut off from western capital in spite of tremendous opportunities there.
Capital inflows are essential for developing economies to grow. Have you forgotten about China? How much FDI China received in last 2 decades? Way much more than India about 10 times more I would guess. Pakistan doesnt get much FDI and how is your economy doing? So saying economy would collapse without capital inflows is the same as saying you would die if you dont eat food. So you dont score any brownie points here. Sorry!
Anon: "Capital inflows are essential for developing economies to grow. Have you forgotten about China?"
China's rise was driven mainly by export surpluses, not massive deficits, the kind of deficits India continues to run.
Listen to Dr. Ghosh on JNU. She says:
1. Talk of Chinindia is nonsense. China and India are two very different countries with different histories. India has never done the hard work of basic reforms that China did decades ago. Unlike India, early reforms combined with greater state control on the economy have helped China achieve rapid and massive reduction in poverty.
2. Unlike China, India does not run any trade surplus or current account surplus to fund its growth. In fact, India has been running significant twin deficits. India depends much more on foreign investments for its growth than China.
3. Although large number of Indians estimated at 110 million have been the main beneficiaries of India's rapid economic expansion, their numbers are only about 10% of India's 1.1 billion people. The growth has excluded the rest of the 90% of the population, leaving them in abject poverty.
4. Instead of fighting against economic injustice, people are being divided along ethnic, religious and caste lines. There is an increase in all kinds of unpleasant social and political forces in India, where people are turning against each other, against linguistic, caste and faith groups, because they can't hit at the system—it's too big. So they pick on somebody their own size, or preferably smaller.
http://www.riazhaq.com/2010/04/bric-chinindia-and-indian-miracle.html
[Western capital flows, including private investments, are guided by US and its western allies policies toward the recipient countries.]
You claim, Indian GDP and economic figures are not reliable. Exports are hyped, GDP is fudged. Wouldn't the guided policies of the West be aware of this and stop investing in India or do they allow themselves to be hoodwinked by these fake figures as you so eagerly claim?
"China's rise was driven mainly by export surpluses, not massive deficits, the kind of deficits India continues to run"
So how does India bridge these deficits year in year out? Is it the guided West who wants to save India
OR
Will India collapse - do you have a timeline?
Jigar: "You claim, Indian GDP and economic figures are not reliable. Exports are hyped, GDP is fudged. Wouldn't the guided policies of the West be aware of this and stop investing in India or do they allow themselves to be hoodwinked by these fake figures as you so eagerly claim?"
I am not claiming it; I'm simply reporting what credible Indian and western economists and analysts are establishing with reliable data and cogent arguments.
And western governments and western-backed institutions believe whatever they find to be in their best overall interests and support their current strategy.
"I am not claiming it; I'm simply reporting what credible Indian and western economists and analysts are establishing with reliable data and cogent arguments. And western governments and western-backed institutions believe whatever they find to be in their best overall interests and support their current strategy."
Do you think before writing or is that too much from a Paki. The first para of the above contradicts the second para. 'reputed western economist' and political analysts guide the decision makers in companies. Western companies invest in India because they are getting ROI. Hyped up GDP can not create good ROI.
No one wants to invest in Pakistan because it has nothing to offer as ROI. How hard is it for you to understand.
Keep dreaming about Indian collapsing. We enjoy this as much as we have been enjoying collapse of India for the last 68.
RK: " Western companies invest in India because they are getting ROI. Hyped up GDP can not create good ROI."
Western investors have lots of choices among the many markets like Pakistan that have consistently outperformed India for over a decade. The reason they choose India is because the US govt policy encourages it for strategic post-cold war reasons.
http://www.riazhaq.com/2014/01/pakistan-stock-index-kse-100-among.html
Last year was the first time in a decade that Indian market slightly outperformed Pakistan's.
It seems India and Pakistan don't only compete on the cricket and hockey fields but also on stock benchmarks. For the first time in three years, India's benchmark Sensex delivered higher returns than Pakistan's the KSE 100. The match went down to the wire, with the Sensex gaining 29.9 per cent and KSE 100 returning 27.2 per cent.
http://www.business-standard.com/article/markets/traders-short-apollo-in-anticipation-of-healthcare-ipos-115010500011_1.html
"Western investors have lots of choices among the many markets like Pakistan that have consistently outperformed India for over a decade. The reason they choose India is because the US govt policy encourages it for strategic post-cold war reasons. "
Substantiate that claim of US govt policy encouraging investment to India over Pak with evidence. Any sources, legislation or references?
The export surpluses didn't come out of thin air. Foreign companies came in with the capital, set up factories and did the manufacturing. If capital from foreign companies is so bad why so hyped about Xinping's announcements?
Indian: " The export surpluses didn't come out of thin air. Foreign companies came in with the capital, set up factories and did the manufacturing. If capital from foreign companies is so bad why so hyped about Xinping's announcements?"
So where are India's trade surpluses after more than trillion dollars in FDI? Why haven't they materialized?
http://www.riazhaq.com/2010/05/soaring-chinese-imports-worry-india.html
Anon: " Substantiate that claim of US govt policy encouraging investment to India over Pak with evidence. Any sources, legislation or references?"
Here's an excerpt of the most recent statement coming out of the White House:
"The signing of a framework on and inauguration of the India-U.S. Investment Initiative in Washington on 12-15 January 2015 to jointly cooperate on facilitating capital market development conducive to financing investment; creating an environment that encourages investment in various sectors in India; and working to overcome any obstacles to such investment"
https://www.whitehouse.gov/the-press-office/2015/01/25/us-india-joint-statement-shared-effort-progress-all
Prof sb,
So you are saying that Western investors have sunk a trillion dollars in India inspite of getting a lower ROI than Pakiland, just because US Govt asked them to do so?
Regards
Just about two months after its managing director Christine Lagarde called India a “bright spot,” the International Monetary Fund (IMF) in its April 15 regional economic survey (pdf) again described Asia’s third largest economy by the same terms.
“Domestic and external vulnerabilities have moderated on the sharp decline in the current account deficit and inflation, the fiscal position has begun to improve, and a resumption of capital inflows allowed a significant buildup in foreign reserves,” the report said. “This confluence of achievements has made India one of the bright spots in the global economy.”
But all those kind words come with one big caveat: India needs to sort out its toxic banking assets.
In its policy requirements for the country (India), the IMF said that enhancing financial sector supervision and monitoring is warranted given the rise in corporate and financial sectors strains.
“Further progress is needed to strengthen prudential regulation for banks’ asset quality classification, augment capital buffers and improve corporate governance at public sector banks, and strengthen the insolvency framework,” it said.
To do this, the IMF said continued efforts are needed to gather information on and analyse the interlinkages between corporate vulnerabilities and the banking system’s health, particularly on the extent of unhedged foreign exchange exposures of large firms with international operations.
Indian banks have been struggling to keep toxic or non-performing assets (NPA) in check. An NPA, according to the Reserve Bank of India (RBI), is a loan for which interest and/or installment of principal remains overdue for a period of more than 90 days.
According to latest data from the RBI, gross non-performing assets (GNPA) as a percentage of the gross advances inched up to 4.45% as of March 15, compared to 4.1% a year ago.
“Asset quality has seen sustained pressure due to continued economic slowdown,” S S Mundhra, a deputy governor of the RBI, said in a speech (pdf). The level of distress is not uniform across the bank groups and is more pronounced in respect of public sector banks, he added. GNPA for public sector banks for March was at 5.17%.
Of course, this is something that India’s banking sector has been grappling for some time now.
“I think, the most immediate problem we have to confront is that of rising level of stressed assets in the banking system. Fortunately in the last quarter those levels of stressed assets tapered off or flattened out,” RBI governor Raghuram Rajan said last July. “But, it is too early to declare victory.”
http://qz.com/399925/the-imf-is-in-love-with-india-but-the-banking-sector-remains-a-thorn/
Summary
Months after the release of the new GDP methodology with much higher numbers, it still remains wildly inconsistent with numerous other indicators, pointing to continued economic slack.
The revised GDP numbers particularly pose dangers for monetary policy decisions, as much of India expects the RBI to cut rates.
RBI Governor Raghuram Rajan and the government’s Chief Economic Adviser Arvind Subramanian, two trained economists, remain 'puzzled' with the new numbers.
Part I of this article series looked at the change in the methodology of calculating India's GDP that literally overnight transformed an 'ailing' economy into one of the best performing economies globally. The problem is not with the methodology per se. The methodology is the same that is globally accepted; the problem is with the missing comparable numbers as per the older methodology, and the missing longer term historical data for the new one (not necessary that historical data beyond three years be made public, but it should at least be made available to statisticians doing the exercise and to other approved authorities for scrutiny/confidence building).
-------
Presented here are some of the related data over the years to get a comprehensive picture. The Index of Industrial Production (IIP) data reveal two insights: Post 2008, there may have not been a sustainable recovery but a sharp bounce back in 2011 which can be attributed to a typical inventory bounce back as normally seen after a period of sharp decline like the one during the 2008-09 period. In a slowdown, cut back in production is multiplied by the effect of sharp inventory reductions, making the situation even worse. An inventory bounce back is the opposite of it. With signs of recovery, companies start filling up shelves again faster than the real demand. The Economist blog, referred in Part I, first suggested that based on the IMF's World Economic Data following market prices, India grew faster than China in the April-March 2010-11 financial year of India's vis-à-vis China's calendar year of 2010. This observation synchronizes well with the inventory bounce back of IIP numbers observed in the following IIP chart.
The IIP for March, reported on 12th May, came in at a five-month low of 2.1%, making the yearly average for 2014-15 at 2.8% compared to a contraction of 0.1% for 2013-14.
True, there are masquerading voices within India with political inclinations who find nothing wrong in this overnight cure of the ailing economy. The same voices blamed the last government for the economic slowdown, which now becomes imaginary, as per the new methodology. The falling earnings (the last quarterly earnings of 101 companies, that declared results by 27th April or so, fell by 9.23%) and the continuous deterioration of balance sheets of companies, especially banks, convincingly debunk any such hypothesis. It also exposes the charade behind the new GDP numbers. Merely stating how the IIP numbers simply do not matter anymore in the methodology, directly or indirectly, may not be the whole truth. The deterioration of balance sheets is the root cause for the increasing NPAs in Indian banks, mostly state-owned ones, without any certainty as of now on whether or not NPAs have reached a saturation level. This is what RBI Governor Rajan said on NPAs on 17th April:
"The non-performing assets have been growing. I'm hopeful that we are near the peak or that we have even passed the peak, but we won't know until it is truly clear with the passage of time."
Similarly, a look at India's trade data shows a sharper slowdown (21%) in exports than in imports (13%) for the last reported month (March 2015). There is an overall decline in both for the year too.
http://seekingalpha.com/article/3180526-myth-or-reality-scrutinizing-indias-revised-gdp-numbers-and-secular-bull-market-part-ii
India GDP growth is one-third statistical illusion
India’s GDP growth is now one-third a statistical mirage. Unless something has changed dramatically in recent years in how companies and consumers behave, the economy is more likely to be expanding at 5 percent, not the 7.5 percent claimed by the authorities.
The illusion comes from a recent supposed improvement in the way India calculates its Gross Domestic Product. In theory, Indian GDP is now closer to international standards. In practice it has become utterly unreliable. Depending on it could easily lead India’s monetary policy astray.
This week, investors dumped Indian assets after the Reserve Bank of India cut its benchmark interest rate by a quarter percentage point. Central bank governor Raghuram Rajan felt compelled to explain why he had reduced borrowing costs five days after the country’s statistics office claimed stellar expansion in GDP. But investors were upset that Rajan was not doing more to revive a slowing economy.
But just how sluggish is the economy really? Breakingviews tried to answer that question by looking at three indicators: corporate earnings, auto sales and imports of computer software. The logic is straightforward: retained earnings finance new investment projects; auto sales are a proxy for consumer demand; while software imports reflect productivity gains. Mixing the three in a simple index suggests that growth in the most recent quarter was closer to 5 percent.
Combining indicators of demand and supply will annoy the purists. However, the rough-and-ready gauge reliably predicted GDP growth in the coming quarter between 2005 and 2011.
June_5_India_GDP_growth
Back then India’s methodology for adding up output was more robust. The new GDP data is another matter. Take the third quarter of 2013, when the country came perilously close to a currency crisis. The Breakingviews index shows GDP growth stalling. But according to the new official data, the economy grew at its fastest rate in nine quarters.
The faulty monitor continues to give misleading all-clear verdicts on the economy. It’s now more than a persistent irritant. There’s a serious risk that policymakers could underestimate the output shortfall, thereby aggravating the deficit. GDP is everywhere a statistical artifact; but in India, the illusion of growth is threatening to make the reality worse than it is already.
http://blogs.reuters.com/breakingviews/2015/06/05/india-gdp-growth-is-one-third-statistical-illusion/
#Modi's #India’s exports contract for a sixth month, down 20.2% in May - Livemint #MakeInIndia
http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html …
The Indian commerce ministry announced on Tuesday that India’s exports fell 20.2 percent compared with the same month last year (LiveMint, Reuters). This announcement makes May the sixth consecutive month in which exports have fallen and this is the the longest such streak since 2009. The ministry also announced that imports fell by 16.5 percent, bringing the overall trade deficit to a 3 month low. According to the data gathered by Bloomberg, in May, oil imports fell 41 percent to $8.53 billion, non-oil imports fell 2.2 percent to $24.21 billion however gold imports grew 10.5 percent to $2.42 billion. A weakening rupee and an acceleration in inflation indicates maneuverability is decreasing for Reserve Bank of India (RBI) governor Raghuram Rajan to lower interest rates any further. RBI has already cut the interest rates in the country three times this year.
The Indian rupee touched the day’s low soon after the data. The currency has weakened 2.1% over the past three months, the fourth-worst performance among 24 emerging market currencies tracked by Bloomberg. Bloomberg
http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html
Meanwhile, the Indian rupee has lost 5.8% this year against the U.S. dollar, while the Brazilian real is down 31% and the Russian ruble is down 13%. The Chinese yuan is down 2.6%, but the currency has been propped up by Beijing despite an Aug. 11 devaluation, the most significant downward adjustment since 1994.
Stocks also paint a less painful picture for India.
India’s S&P BSE Sensex has fallen around 8% since the beginning of June. China’s stock market started tumbling in mid-June as local investors worried about the country’s high level of debt and its growth prospects. China’s Shanghai Composite Index has lost nearly 30% from the start of June through Wednesday, while Hong Kong’s Hang Seng Index, where foreigners can invest freely, has lost 19% over that period and Brazil is down about 10%.
To be sure, investors have been disappointed by India’s economy and the pace of reforms since the government of Narendra Modi came to power in May 2014. In anticipation of stronger growth and policy overhauls, the Sensex had gained nearly 30% in 2014, making it one of the best-performing major markets in the world.
Though India’s gross domestic product grew at a 7% rate for the April-to-June quarter, versus 5.7% growth in the same period in 2014, analysts attribute that partly to a change in the way the growth data are calculated. Company profits have barely grown, and now analysts say it could be another year or more before earnings pick up substantially.
The outflow of funds from India last month, surpassing even those from Brazil, a country facing more fiscal and economic challenges, partly reflects that disappointment.
Brazil had outflows of $940 million from its stock market, according to the Institute of International Finance. South Africa, another big emerging market, posted a net inflow of $190 million in August. Those data aren’t available for China and Russia, the IIF says.
To some degree, however, India was hurt by its own popularity. When global investors want to reduce their risky investments, they tend to sell stocks that are most liquid and have performed well.
http://www.wsj.com/articles/investors-see-india-as-strongest-of-the-weak-1441827121
Continuing confusion over #India GDP official stats. Deflator Problem https://shar.es/1vLDt3 via @sharethis
What is the source of the confusion? In the first quarter of 2015 (1Q15; all references are to calendar year) GDP growth surprised sharply to the upside, printing at 7.5 per cent, even as activity appeared soft on the ground. Corporations had their worst quarterly earnings in six years, a sharp fiscal squeeze was applied to meet the deficit target and agriculture was experiencing a drought year. Yet, national income accounts showed that GDP growth had accelerated sharply from 6.6 to 7.5 per cent — raising several eyebrows.
In the next quarter, exactly the opposite happened. Earnings improved and consumption was palpably benefitting from the collapse in oil and food prices. Yet, against all expectations, GDP growth decelerated to 7 per cent. What explains this disconnect?
The GDP is the sum of gross value added (GVA; at basic prices) and net indirect taxes (NIT). The GDP can be thought of as the whole pie, whereas GVA is the slice appropriated by labour and capital, and NIT is the slice appropriated by the government. There appear to be no particular issues with the dynamics of the GVA in recent quarters, though questions remain about the level of growth thrown up by the new GDP methodology — and whether that syncs with events on the ground. But that’s another debate. GVA growth slowed sharply from 6.8 per cent in 4Q14 to 6.1 per cent in 1Q15 and then re-accelerated to 7.1 per cent in 2Q15, as expected.
Instead, the issue lies with NIT. Real NIT growth jumped from 3.7 per cent in 4Q14 to 18.9 per cent in 1Q15, but then fell off dramatically to 6.5 per cent 2Q15. This is hard to comprehend. NIT should rise if collections rise or subsidies fall. So why did real NIT fall so dramatically in 2Q15, if underlying growth (as captured by the GVA) and, therefore, tax buoyancy, was higher and subsidies lower?
The problem lies with translating nominal into real quantities; what economists call the “deflator”. The idea is simple: we want to deflate out all price movements so as to capture “real” economic activity. In the case of NIT, we also have to deflate out changes in tax rates or bases. Herein lies the nub of the problem. In nominal terms, NIT growth increased, as we would expect, to 22 per cent (year-on-year) in 1Q15 and to 40 per cent in 2Q15 — excise and service tax rates were hiked, activity grew and subsidies collapsed. But in real terms, growth decelerated sharply. Why? Because the implicit deflators used were 2.6 per cent in 1Q15 and a whopping 31.4 per cent in 2Q. This completely skews real NIT and GDP growth.
Both numbers are hard to reconcile. There was virtually no inflation (as measured by the GVA deflator) in 1Q and 2Q15, so the deflators should largely be reflecting tax rate changes. Consider this: The weighted average increase in excise duties for petrol and diesel was 130 per cent in 1Q15, compared to the same period the year before. Just these tax increases — given the share of oil excise in total tax collections — should have resulted in a deflator of 8-9 per cent. This would have resulted in 1Q15 GDP growth printing at 6.9 per cent, not 7.5 per cent. Why then a deflator of 2.6 per cent? And why the humongous jump in the deflator to 31.4 per cent in 2Q15? True, service taxes were hiked by about 13 per cent (from 12.36 to 14 per cent), but this was only applicable for one month (June) of the quarter. The service tax base was also increased slightly. But how does this result in 2.6 per cent jumping to 31.4 per cent?
http://indianexpress.com/article/opinion/columns/gross-deflator-problem/
#India's August exports shrink for ninth straight month, fall 20.7%. #Modi #BJP http://toi.in/SejmIb
NEW DELHI: Contracting for the ninth month in a row, India's exports plunged by 20.66 per cent in August to US $21.26 billion, widening the trade deficit.
READ ALSO: Devaluation of yuan will affect India's textile exports
The significant slump in country's exports is attributed to global slowdown and declining commodity prices worldwide.
In August 2014, the merchandise exports had amounted to US $26.8 billion. The last time exports registered a positive growth was in November 2014, when shipments had expanded at a rate of 7.27 per cent.
Imports too declined by 9.95 per cent to US $33.74 billion in August this year due to high gold imports, leaving the trade deficit at US $12.47 billion, according to the data released by the Commerce Ministry.
However, the trade deficit has narrowed in August as compared with July this year, when the figure stood at US $12.81 billion.
In August last year, the deficit was US $10.66 billion.
Gold imports rose by 140 per cent to US $4.95 billion in the month under review from US $2.06 billion in August last year.
The main exporting sectors which reported decline in exports include petroleum products (fall of 47.88 per cent), engineering (29 per cent), leather and leather goods (12.78 per cent), marine products (20.83 per cent) and carpet (22 per cent).
Exporters expressed concerns over the continuous decline.
#India's #poverty is understated and its #GDP is exaggerated, says #Nobel Prize winner Angus Deaton. #BJP #Modi http://www.ibtimes.co.in/indias-poverty-understated-says-nobel-prize-winner-angus-deaton-652120 …
Deaton, however, believes that the poverty rates could be even higher. There is surely some omission in the surveys, which would mean that poverty is understated", Deaton told Hindustan Times in an interview.
He also said that the economic growth in India is not as high as the government presents it to be. India is said to be world's fastest-growing economy at 7 per cent growth rate.
"Everyone's data can be improved. I think it is widely recognized that the national accounts in India are relatively weak. So what I am most worried about is that growth is not as high as the accounts show. Revisions that increase growth are more readily accepted than revisions that reduce growth. So I am more worried about growth being overstated than poverty being understated," he added.
According to Deaton, the Indian government needs to invest more in nutrition, health and education of the young generation of the nation if it wants to overcome the growing poverty rate.
"Yes, though there are organizational and capacity problems that need to be overcome. In places where services don't work, for example, because of absenteeism, putting in more money is unlikely to help. But if other states can emulate the better services in the south, with more people demanding health and education, then we can make progress, and to do that, we will eventually need more money," he said.
Deaton, the Princeton University Professor, has done a thorough analysis of consumption and poverty in India. He contributed majorly to estimating India's poverty rate in 1990s with his work on India's malnutrition.
French Economist-Author Thomas Piketty to #India’s "Hypocritical" "Self-Serving" Elite: ‘Learn From History’ http://nyti.ms/1lQ5b4z
After he fled to the authors’ lounge, Mr. Piketty told me that he found the elite of India “hypocritical” for urging their government to address inequality by pouring resources into economic development, like building infrastructure or helping selected industries. This is self-serving, he says, and only increases the gap between the rich and the poor. In his opinion, governments should find the means to invest more in social welfare, like primary education and health care.
Before the world wars, he said, “the French elite used to say the same things that the Indian elite now say, that inequality would be reduced with rising development.” But after the wars, he said, the French began to see that direct investment in welfare was the way forward.
“I hope the Indian elite learn from the stupid mistakes of the other elites,” he said. “Learn from history.”
India is just emerging from what many regard as a catastrophic experiment in a type of socialism, the sort that economists like Amartya Sen, the Nobel laureate, say was not socialism in the first place, because it neglected health care and primary education. What the Indian elite learned from that history was to fear and loathe the idea of the welfare state.
In 1991, India reached the nadir of an economic crisis that forced it, in exchange for a financial rescue from the International Monetary Fund, to begin liberalizing its economy along the free market lines that were championed then by Washington. In the years that followed, the rich and the educated benefited the most, though the poor are better off today than they were before those changes.
Having prospered in recent decades, the Indian elite have faith in this economic model. But there is also a wide acceptance that India’s inadequate investments in education and health are holding the nation back.
“The problems India is trying to solve are problems other countries are trying to solve,” Mr. Piketty had said during his lecture. “India is trying to solve very complicated problems.”
Big International Asset Managers Leaving #India - http://FT.com #Goldman #Fidelity #MorganStanley http://on.ft.com/1mXuanp via @FT
International asset managers in India are disappearing at an alarming rate.
Goldman Sachs Asset Management, the $1.19tn fund arm of the US bank, became the fourth global investment manager to quit the country last year. It announced plans in October to sell its mutual fund business to Reliance Capital, India’s third-largest asset manager.
Just weeks earlier Belgium’s KBC Asset Management said it would terminate its push into India with the sale of its stake in Union KBC Asset Management to Union Bank of India.
Fidelity Worldwide Investments, PineBridge Investments and the asset management arms of Morgan Stanley and Deutsche Bank have all sold their mutual fund businesses in the country over the past three years.
The fund houses are reluctant to discuss the reasons behind their exit, but analysts say India has not been the cash cow many asset managers expected.
Sze Yoon Ng, an Asia-based director at Cerulli Associates, the research company, says: “Most [foreign asset managers] are not making money.”
Intense competition, regulatory uncertainty and problems getting fund ranges in front of end investors has meant is not unusual for a foreign asset manager in India to make a loss even after 10 years in the country. “It is hard to stay optimistic when your three-year break-even plan stretches to 10 years and counting,” says Ms Ng.
Fund companies were initially tempted by India’s growth story — its emerging middle class and strong economic expansion. Banking on a population of ready-to-invest consumers, asset managers kept coming to the country, say experts.
“Foreign asset managers saw potential in India: it is a huge country, with great demographics,” says Daniel Celeghin, a partner at Casey Quirk, the consultancy. He has worked with asset managers hat have operations in India. “But you have to be willing to put a lot of time and effort in.”
Franklin Templeton Investments is one of the few global asset managers to have cracked the Indian market. It set up shop 20 years ago and is now the only fully foreign-owned asset manager among India’s top 10 fund houses.
Harshendu Bindal, president of Franklin’s operations in India, says many foreign asset managers came to the market too late and failed to understand the nuances of the country’s “hyper competitive” mutual fund industry.
The market is dominated by just a handful of asset managers. The 10 largest fund houses account for more than 77 per cent of the $200bn of assets under management in India. Lakshmi Iyer, head of investments and product development at Kotak Mahindra Asset Management, the ninth-largest investment manager in India, says the concentration of assets among the top providers “increases the time taken to break even” for entrants.
Rather than go it alone, several international asset managers have tried to gain a foothold in India by partnering with local banks and other financial institutions to create mutual fund businesses.
India’s biggest asset manager, HDFC Asset Management, is a joint venture between Standard Life Investments, the UK fund house, and HDFC, a bank. Prudential, the UK-listed insurer, and local provider ICICI Bank operate ICICI Prudential Asset Management, India’s second-largest asset manager. BlackRock and Amundi Asset Management also have joint ventures in the country.
Big International Asset Managers Leaving #India - http://FT.com #Goldman #Fidelity #MorganStanley http://on.ft.com/1mXuanp via @FT
But international fund houses frequently find joint ventures difficult to navigate. “You have to realise you will be junior partner to a local firm,” says Mr Celeghin, adding that this is something global asset managers are uncomfortable with.
Foreign asset managers face several other challenges, including being unable to sell international products, such as mutual funds regulated in Europe. Instead, they need to set up local funds. These are typically focused on Indian stocks and shares, partly because of restrictions on what can be sold to retail investors. “If you want to do business in India, you need to have an investment team in the country to create and run a fund, and that is costly,” says Mr Celeghin.
Distribution can also be an obstacle. Banks tend to favour the products of their own asset management arms, according to Cerulli. Meanwhile, the regulatory landscape for financial advisers, which control around 30 per cent of the mutual fund market, has been in flux.
In 2009, the Indian regulator introduced rules for mandatory disclosure of rebates — money paid from asset managers to financial advisers to entice them to sell their products. This was later overturned. The Securities and Exchange Board of India has also mooted phasing out commissions entirely, but this looks unlikely at the moment.
“The business environment is one where the rules are changing frequently. It is hard to get clear guidance on what twist or turn can be expected in the future,” says Mr Celeghin.
Ajit Dayal, chairman of Quantum Asset Management Company, which sells funds directly to investors, says: “While [the regulator] is trying to force the industry to adopt a more transparent practice, the distribution industry is dominated by large banks and brokerages and it is not in their interest to necessarily have a more competitive market.”
As a result, foreign asset managers have struggled to mop up assets. Goldman Sachs’s Indian fund business had just $1.1bn in assets under management when it announced plans to sell its mutual fund business.
But Franklin’s Mr Bindal says fund houses that depart are missing a big opportunity. Despite the challenges in the country, India’s fund industry is growing rapidly. Since March 2012, the market for Indian mutual funds has almost doubled in size, according to data from the Association of Mutual Funds in India, the local trade association.
He believes investment companies just need to work harder. “India is truly an attractive market for asset managers,” he says.
While one international asset manager after another has fallen away in India, Franklin Templeton Investments appears to have found the recipe for success.
It was one of the first international fund companies to enter the country, setting up after the government announced plans to allow non-banks to manufacture mutual funds in the early 1990s.
Harshendu Bindal, president of Franklin Templeton in India, says its early foray played an important role in helping it become the country’s seventh-largest asset manager.
“We are one of the oldest fund houses in the country, with a 20-year record, which gave us a long head start [on other foreign asset managers],” he says.
The fund house, which manages $10bn in assets in India, set up a range of local funds, introduced trail-based commissions to incentivise distributors to sell its products and launched various savings products, such as its Family Solutions range, in order to win business.
Patience is vital to success in India, says Mr Bindal. “A fund house may need anywhere between five and seven years, or at times even a decade, before it turns profitable.”
Reserve Bank of #India Governor Raghuram Rajan sceptical about GDP calculation. #Modi #BJP https://shar.es/1hE5dZ via @sharethis
Reserve Bank Governor Raghuram Rajan on Thursday raised a question mark over the way gross domestic product (GDP) is calculated in the country stating that “we get growth because people (are) moving into different areas”.
Value addition to the GDP is important when people move into newer areas of work rather than just a rise in the growth numbers, Rajan said while asserting the need to be careful in counting GDP numbers. Industry experts and economists had in the past expressed skepticism over the calculation of GDP numbers according to the new methodology.
“So, in that sense we have to be a little careful about how we count GDP because some time we get growth because people (are) moving into different areas. It is important that when they move into different areas they are actually doing something which is more value added,” Rajan said.
Speaking at the 13th convocation ceremony of the Indira Gandhi Institute of Development Research in Mumbai, the RBI Governor gave an example of two neighbouring mothers who babysit each other’s child and get paid an equal salary. He said both the mothers getting paid a salary will be an addition to the GDP but may not be an exact reflection of an economic growth.
“If mother A went to look after the children of mother B and mother B went to look after the children of mother A, and they each paid each other an equal amount, GDP would go up by the sum of the two salaries. But would the economy be better off? Presumably, kids want their own mother rather than the neighbouring mother. And the economy would be worse off,” Rajan observed.
According to the government’s mid-year economic review, the economy is now expected to grow at 7-7.5 per cent in the fiscal year ending March 2016, down from an estimate of 8.1-8.5 per cent announced in the Budget in February. In January 2015, the government led by Prime Minister Narendra Modi changed the base year for computing national accounts which pushed up the economic growth rate for 2013-14 to 6.9 per cent, while earlier estimate on the basis of old series was 4.7 per cent. These changes follow a revision in the base for calculating national accounts to 2011-12 from 2004-05.
Pranab Bardhan, a professor at the University of California, Berkeley, who was the guest of honour at the event raised the point on the possibility of restructuring the current system of capital subsidies to wage subsidies through which the business sector could be actively involved in worker training programmes as well as identifying good workers. Supporting the issue, Rajan stated there is a need for incentivising employment rather than providing subisidies on capital. “Apart from direct tax benefits for investment, we also give subvention on loans in many situations which subsidises capital. We may not do similar things for labour. Clearly, trying to incentivise the employment which will add skills to labour is extremely important,” Rajan added.
- See more at: http://indianexpress.com/article/india/india-news-india/raghuram-rajan-sceptical-about-gdp-calculation/#sthash.3qa2gvO4.dpuf
It is time we ( #India )stop thumping our chests for being "fastest-growing economy" #Modi #BJP via @firstpost http://www.firstpost.com/business/isnt-it-time-we-stopped-thumping-our-chests-for-being-fastest-growing-economy-we-are-not-2603172.html …
You can trust Raghuram Rajan, the Reserve Bank Governor, to prick any balloon of excess optimism when required. Even as the idea of India being the fastest-growing major economy in the world gets bandied about carelessly, especially by politicians who would like to claim credit for it, Rajan had this to say yesterday (28 January): "There are problems with the way we count GDP, which is why we need to be careful sometimes just talking about growth."
Nor does talk of India overtaking China on growth make much sense. At five times India's GDP, our 7 percent economic growth equals under 1.5 percent China's growth in terms of its impact on global growth. China may be reeling under excessive debt and is painfully readjusting its economic engine towards domestic consumption, but India's problems are hardly any less stark. We have a corporate sector staggering under loads of debt, and banks that would be heading towards bankruptcy if they were not government-owned.
The problem with us is that we tend to celebrate success a bit too soon; even if politicians feel the need to claim success even if it was largely due to luck, there is no need for the media to keep claiming that we are the fastest growing economy. India reforms only when it is on the brink of economic disaster - as was the case in 1991 - and trying to pretend that all is hunky-dory is the last thing we need. We continue to be in deep trouble, and even though there is slow improvement in the growth cycle, we are far from being home and dry. And the seven percent growth we have taken for granted for now can be yanked from under us if there is a meltdown in China or another 2008.
India's misfortune is that we shifted to a new way of measuring GDP - gross value added - just when the government changed. So we have new data from the ministry of corporate affairs' five lakh company database whose validity we have no clue about adding to the confusion, as Rajan pointed out. This has given the NDA government unnecessary bragging rights.
Caculated on the more accepted old GDP methodology, we are probably more at six percent growth than seven percent.
The latest bank results - from ICICI Bank and Axis Bank - show that the rotten loan portfolio has now begun to infect even private sector banks. ICICI Bank reported a near one percent rise in gross non-performing assets in the December quarter, which sends a worrying signal. The bad loans scenario is clearly a bigger problem than we thought earlier.
This means the Modi government has much more work to do before it can claim some degree of success in turning around the economy. The UPA has handed it a poisoned chalice which it has been drinking heartily from, assuming it was amrut. Not quite.
Consider the mess it has inherited in so many sectors, and why cheap oil alone will not help.
First, cheap commodity prices help the government bring down inflation and the subsidy bill, but it also depresses the profits of oil and coal companies, and has roiled the steel sector.
Second, the mess in corporate and bank balance-sheets ensures that there is no stock market nirvana. Loads of public sector equity can't be sold as petroleum and banking stocks are a huge part of the indices and prices are deadbeat.
Third, big bills are coming up on one-rank-one-pension and the Seventh Pay Commission. The only way to pay these bills is to let the fiscal deficit go where it will in 2016-17 and rein it in from the year after.
One hopes the finance minister bited the bullet fully in his next budget.
Fourth, the UPA left the infrastructure and real estate sectors - two of the biggest potential job creators - grinding to a halt. Reviving both will be a herculean task.
#India is pissed about the #US now charging more money for #H1B temp worker visas: https://news.vice.com/article/india-is-pissed-about-the-us-now-charging-more-money-for-guest-worker-visas … via @vicenews
The annual gold rush in Silicon Valley to fill out applications for guest worker visas began Friday, as the federal government began distributing some of the 85,000 H1B visas it is authorized to issue this year.
But the dash to grab visas is set against the backdrop of a political debate both within the United States and abroad about the regulations surrounding H1B visas, the government designation for visas designed for highly-skilled employees in "specialty occupations."
Just weeks ago, India filed a complaint with the World Trade Organization over an increase in fees on H1B visasthat the US imposed on companies with workforces comprised of more than 50 percent foreign workers. A provision included in last year's federal spending bill tacked on a new $4,000 fee the H1B visas, which India argues is discriminatory to the country under its trade agreement with the US.
India's complaint comes as Congress has been mulling other reforms to the H1B program to address allegations that companies are using the visas to hire cheaper foreign workers to replace American workers. The Senate Judiciary Committee held hearings earlier this year in which senators, including Ted Cruz and chairman Jeff Sessions, probed experts on whether US tech firms really needed more H1B visas to fill open positions, as they claim, and what protections might be put in place to ensure that American workers are being given preference for positions over foreign workers.
Related: The Los Angeles Unified School District Has Banned Immigration Raids on Its Campuses
"The intent of the program is to fill skills gaps in the US when American workers aren't available, but the reality is that the program has become a way for firms to create a business model that's about bringing workers who are cheaper into the US and to either substitute or directly replace Americans," said Ron Hira, a political science professor at Howard University, who testified at the hearing on February 25.
Hira said that foreign workers make anywhere from 20 percent to 40 percent less than their American counterparts within the program.
Two recent lawsuits accused companies, including Disney, HCL, and Cognizant, of firing Americans in order to hire H1B workers for less money. Leo Perrera, a former Disney employee who brought one of the suits, testified at the Judiciary hearing in February that "20 years of hard work, a bachelor's degree in information technology and an IT job for Disney were all over when my team along with hundreds of others were displaced by a less-skilled foreign workforce imported into our country using the H1B visa program."
The debate over whether the H1B program is hurting American workers rose to public consciousness amid the Republican primary debates earlier this year. Donald Trump said in one debate he supported expanding the H1B visas in one instance, but later said the system was "rampant with abuse." Ted Cruz has introduced a bill in the Senate that proposes some reforms to the programs, including minimum salary requirements for foreign workers, while Bernie Sanders has called for changes to the program. Hillary Clinton has, in the past, called for an expansion of the H1B program.
Cruz's bill is one of three bills proposing reforms to the H1B program currently in Congress. A bill proposed by Senator Chuck Grassley and Senator Dick Durbin would put in place a requirement that companies first seek American workers to fill open roles before applying to have them filled with foreign workers and would limit how many H1B workers a company could hire, while a proposal by Sessions and Senator Bill Nelson seeks to cut the number of H1B visas allocated each year.
True, India's economic growth in the last 25 years has been slower than China's. India's growth rose to almost 11 percent of U.S. gross domestic product in 2014 from about 4 percent in 1990, while China’s vaulted to 60 percent from 9 percent in the same period. But unlike China, India never became an export-driven manufacturing juggernaut and so its growth has been steadier. Last year it was 7.5 percent.
India's Aspirations
India also didn't benefit as much as China when manufacturing shifted from the West to developing countries, and thus the decline in offshoring is hurting India less than China.
India certainly has its problems -- notoriously slow bureaucracies, a lack of good infrastructure, and too much regulation and corruption to name a few -- that need to be addressed before economic growth can explode. Modi has sought reforms for many of these issues, though with limited success so far.
Reliable data measuring India's economy are fuzzy, to say the least. Most businesses are tiny and unregulated; many people are employed off the books. India also uses wholesale, not final, prices to deflate nominal GDP. Due to lower oil prices, the wholesale price index has been falling for 17 straight months while retail prices are still rising at a 5 percent annual rate. So the reported real GDP numbers are overstated.
Still, India has major advantages over China. China's one-child policy, while now relaxed, will result in fewer entrants into the labor force for decades. That could choke growth: Younger people tend to be more geographically mobile and flexible in terms of occupation and ability to learn new skills.
By contrast, India has had few constraints on population growth. The dependency ratio -- the number of children and seniors relative to the working-age population -- will continue to fall in India as it rises in China. As of 2015, India had 1.25 billion people versus China’s 1.37 billion. It won't be long before India's population is bigger.
Say what you want about colonialism, but British control of India for centuries left a vigorous democracy and a parliamentary form of government, which is useful for running a large, diverse country.
The British also left India with a railway system that facilitates the movement of people and goods over a vast geography. By contrast, China is reluctant to grant resident status to farmers who move to urban areas in search of work.
And of course the British gave India the English language -- useful in a world that conducts most business in English and as a unifying force in a country with hundreds of languages and dialects. India also inherited a free press and a legal system from the U.K. As a result, India's rule of law is vastly better than the Communist party-dominated courts of China, complete with show trials and forgone convictions.
http://www.bloomberg.com/view/articles/2016-06-03/what-s-india-got-over-china-plenty
#India's #RBI chief Raghuram Rajan to leave, punished for questioning #Modi's fudged GDP figures http://scroll.in/article/810200/raghuram-rajans-letter-makes-it-clear-leaving-the-rbi-wasnt-his-decision … via @scroll_in
Raghuram Rajan will not be the governor of the Reserve Bank of India after September. That's not idle speculation inspired by Bharatiya Janata Party leader Subramanian Swamy's campaign calling for him to leave. It has been announced by Rajan himself in a letter to his colleagues at the central bank which the RBI published on Saturday. The internationally renowned economist wrote that he will be returning to academia after the end of his tenure as governor on September 4.
This ends months of speculation over whether Rajan, a United Progressive Alliance appointee, would see his tenure extended after his three-year term ends. Swamy was at the head of a public, often nasty campaign calling for Rajan to be sacked because he is not "mentally fully Indian." Swamy claimed that there were many others in the BJP who agreed with him.
The campaign prompted plenty of pushback from others, particularly economists who have lauded Rajan for his efforts in helping stabilise the Indian economy over the past few years. Many also suggested that not extending Rajan's tenure would have a detrimental effect on India's image with the business community abroad. The Economic Times' Swaminathan Aiyar even said that Rajan leaving would see billions of dollars in investment also follow him out of the country.
There were murmurs also that many in the establishment did not want Rajan to continue, in part because of his insistence on hawkish monetary policy that focused more on controlling inflation than cutting interest rates to make credit cheaper for industry.
The other reason why the government wanted him to go: Rajan's celebrity status, at home and abroad, meant he was one of the few people who could publicly criticise the government's policy. Most prominently, just as the government was touting India's status as the fastest growing major economy in the world, Rajan brought up the old phrase, "in the land of the blind, the one-eyed man is king."
Swamy's campaign might have embarrassed the government, prompting the Prime Minister to say that the media shouldn't discuss these things and Finance Minister Arun Jaitley to criticise the personal attacks. But it hasn't stopped the government from asking him to leave.
Rajan says as much in his letter to his colleagues at the central bank.
As he wrote, Rajan was "open" to seeing the developments through, but the government was not on the same page. Discussions between the finance ministry and Rajan before the last monetary policy statement, where the central banker chose not to cut rates, did not go well.
As a result, come September, Rajan will be back at the University of Chicago and India will have a new RBI governor. Significantly, however, Rajan's final monetary policy statement is also likely to be the last one put out solely by an RBI governor: His tenure saw the signing of monetary policy agreements between the central bank and the government agreeing to inflation targeting as the primary aim of the RBI, as well as the setting up of a monetary policy committee – including government appointees with no RBI veto – that will set the interest rate.
Whatever the view of his tenure as central banker, and there will be many over the coming days including the Sensex's verdict on Monday morning (which is probably why the decision was announced on the weekend), he will have left the RBI in a very different place than where the institution was before him.
Indian new report:
Raising doubts over the new GDP growth rate methodology, RBI Governor Raghuram Rajan on Thursday said there is a need for better computation of numbers so as to avoid overlaps and capture the net gains to the economy.
we need to be careful sometimes just talking about growth," Rajan told the students of the RBI-promoted Indira Gandhi Institute of Development Research.
In his convocation address, citing the example of two mothers who babysit each other's kids, he said there is a rise in economic activity as each pays the other, but the net effect on the economy is questionable.
"We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value. We do lose some, we gain some and what is the net, let us be
careful about how we count that," he said.
The academic-turned-central banker further said that there are many suggestions from various quarters on the ways to calculate GDP in a better way and we should take those seriously.
Some analysts have questioned the new GDP computation methodology, which has been in effect for a year. The critics point to the divergence in the mood between GDP data and other indicators like factory output to question the veracity of the new series.
http://www.firstpost.com/business/raghuram-rajan-raises-doubts-about-new-gdp-questions-its-accuracy-overlaps-2602388.html
China and India GDP figures tell a story, just not a true one
Nikkei Asian Review
http://asia.nikkei.com/Politics-Economy/Economy/China-and-India-GDP-figures-tell-a-story-just-not-a-true-one
I was curious about how Prime Minister Narendra Modi's surprise move to withdraw 500- and 1,000-rupee bills could impact the Indian economy, so I read a Dec. 8 report on the Indian central bank's decision to keep interest rates unchanged.
In the report, a term that was unfamiliar to me -- gross value added -- piqued my interest. The article said the central bank had downwardly revised its GVA-based growth forecast for the year through March 2017 to 7.1% from 7.6%.
Doing some research, I found that a country's GVA is the total of the value of goods and services produced in all industries and similar to GDP in terms of being a measure of production. The Reserve Bank of India, the central bank, does not put much faith in GDP data and uses GVA instead to assess the country's economic health.
In early 2015, India switched its method of calculating GDP from a formula based on supply-side prices to one using demand-side prices. The result was a sharp increase in India's GDP growth rates. The growth figure for the July-September quarter in 2014, for instance, was upgraded to 8.2% from 5.3%.
Based on the new GDP calculation formula, India's economy grew by 7.6% in 2015, outpacing China's 6.9% expansion. The switch has helped India cultivate an image as the new star performer among emerging countries, replacing China.
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But the RBI argues that the old formula for calculating GDP, which uses supply-side prices in computing the total value created through production, is more suitable for accurately evaluating the country's economic performance.
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Which data is most useful for understanding how a country's economy is faring depends on the country's industrial structure, which evolves over time.
As for India, Yuji Kuronuma, who heads The Nikkei's bureau in New Delhi, says he mainly follows corporate lending, tax revenue and sales of Unilever's lifestyle products, but also keeps an eye on auto sales and airline passenger numbers.
From being world leader in surveys, #India is now facing a serious #data problem: NSS #GDP estimate half of CSO's
http://blogs.economictimes.indiatimes.com/et-commentary/from-being-world-leader-in-surveys-india-is-now-facing-a-serious-data-problem/
The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.
For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.
We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).
And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.
#India’s GDP being questioned. In 2015, the #Modi government changed #GDP calculation with base year changed from 2004-05 to 2011-12, dramatically increasing #India’s GDP growth overnight to 6.9% from 5% reported earlier.
https://qz.com/india/1364386/indias-gdp-numbers-are-being-questioned-yet-again/
So how fast exactly did the Indian economy grow around a decade ago? India is still confused about this.
On Aug. 17, the Narendra Modi government’s ministry of statistics and programme implementation (MOSPI) released the GDP numbers for the previous years under the new series that have been in use since January 2015.
According to this, the economy grew at 10.08% in the financial year ended March 2007 under the previous Congress party-led government.
While growth did slow down in subsequent years, on average it was still higher at 8.1% than under the present Narendra Modi-led dispensation—7.3% on average for the four years since 2014 when he took power. Yet, one of the pillars of Modi’s 2014 poll campaign was a perceived slowdown of the economy under Congress rule and the promise of achhe din (good days).
In the past one-and-a-half-years alone, economic growth has come under severe pressure following the demonetisation exercise of November 2016 and the introduction of the goods and services tax in July 2017. In the financial year 2018, GDP growth slipped to 6.7% from the previous year’s 7.1%.
Not surprisingly, the new data has sparked a political debate, besides confusion.
So much so that a day later the MOSPI added a caveat to its recent report: These are not the final figures. These disclaimers were not present till Friday (Aug. 17) and have been added subsequent to the release.
The confusion
In 2015, the Modi government shifted to the new series for GDP calculation, for which the base year was changed from 2004-05 to 2011-12.
As a result, the country’s GDP growth rate rose overnight. For instance, for fiscal 2015, growth was sharply revised up to 6.9% under the new calculation from the 5% reported earlier.
However, one glaring problem with this shift was that data for previous years was no longer comparable, nor, therefore, relevant.
But that transition now appears to have deeply embarrassed the current government.
So, soon after the report was released on Aug. 17, the Modi government dismissed it, saying the numbers were not official and were only experimental. This move was perceived in some quarters as firefighting. Again, on Aug. 21, it was reported that the original report itself had been removed from the site. However, Quartz did find it on the MOSPI website, but through a whole new link.
Economists believe all this confusion could have been avoided.
“Now, the data has been placed on the ministry website which gives one the impression that the data has been accepted by the government. But later in chapter six, it mentions that the Central Statistical Office is still working on the data. And then later the disclaimer was also added,” explained Devendra Kumar Pant, chief economist at India Ratings and Research, referring to the root cause for the confusion.
It needs to be said, however, that discrepancies in data are normal when the base year is changed as they are dependent on multiple factors.
How GDP new series changes the picture of Indian economy
Learnings from the National Statistics Committee report on GDP calculation and its impact on how we see the Indian economy
https://www.livemint.com/Money/DRtb2vkAd8qiW1pCcdkUjM/How-GDP-new-series-changes-the-picture-of-Indian-economy.html
The Report of the Committee on Real Sector Statistics, containing the much-anticipated GDP back series data, is apparently just a draft report, according to the ministry of statistics and programme implementation. But while the numbers are yet to get the official imprimatur, the report does have a number of interesting things to say about the Indian economy. That’s apart from the puerile squabbling about growth rates under different governments.
How does the picture of the Indian economy change when we adopt the latest shiny new measuring rod—the GDP series with 2011-12 as base year?
Let’s take the fiscal year 2011-12 for illustrating the changes. First, the economy gets smaller. Under the new series, gross value added (GVA) at basic prices, (at current prices) was 3.4% lower than under the old series.
But it’s the composition of the economy that’s interesting. The share of industry in the economy has gone up when we use the new measuring rod and the share of services has shrunk. Recall the complaints about India’s unnatural dependence on services—well, the new series paints a slightly better picture, but not enough to dispel the gloom.
In 2011-12, using the new series, the share of industry in the Indian economy goes up to 23% from 19% under the old dispensation.
Manufacturing goes up from a measly 14.7% of total GVA to a bit more respectable 17.4%.
Correspondingly, the share of services shrinks when we use the new series. In 2011-12, services accounted for 63% of total GVA under the old measurements and 58% under the new one. The share of trade, hotels, transport and communication shrinks from 24.7% under the old series to 17.4% under the new one. That’s a substantial reduction, the reasons for which need to be explained. But the share of “financing, insurance, real estate and business services” goes up, as does the share of construction.
Agriculture was 17.8% of the economic pie in the old series and that increases to 18.5%. The details can be seen in the chart above. Note that the data pertains to a single year—2011-12—and the changes are due entirely to our using a new measuring rod to compute GDP and GVA.
How did the share of manufacturing change between 1993-94 and 2011-12? Under the old series, it fell from 15.4% of GVA to 14.7%; under the new series, it went up from 16.8% to 17.4%. So perhaps it’s not entirely premature de-industrialization, but stagnant industrialization? Hard to tell—in 2017-18, the share of manufacturing had slipped back to 16.7%.
What changes did the new series have on the expenditure-side GDP figures? For 2011-12, the biggest change is in gross fixed capital formation—it went up from 31.8% of GDP under the old yardstick to 34.3% using the new one. The share of capital formation is higher under the new series. On the other hand, the consumption share is only slightly different. The details are given in Chart 2.
#Modi-nomics has yet to deliver for many in #India. #BJP has largely failed to deliver on promise to transform India for better, relying instead on buzzwords, fudging statistics and rebuking its admittedly scandal-tainted opposition. https://www.ft.com/content/a1a6e8d4-f4bb-11e8-ae55-df4bf40f9d0d via @financialtimes
India’s ruling Bharatiya Janata party is no stranger to changing history. In 2016, it omitted India’s first prime minister Jawaharlal Nehru from a state-level textbook. A few days ago, the central statistic offices revised down an estimate of annual Indian growth during the previous period when the rival Indian National Congress was in power, from 8.1 per cent to 6.3 per cent. That put it below the 7.3 per cent average for the first four years of BJP prime minister Narendra Modi’s term — and distracted from a slowdown to 7.1 per cent in the third quarter, from 8.2 per cent in the second. While the statistical office purports to be politically independent, opposition politicians alleged political interference was behind the revision. Mr Modi certainly has reason for nervousness, with key regional elections under way and a general election due by May next year. Despite the apparently healthy growth, much of the BJP’s promise for working Indians has yet to materialise. The decision to stop releasing official employment data earlier this year suggests that electoral promises to create good-quality jobs have not been met. Many Indians, including much of the large youth population, remain locked into informal and poorly paid occupations. Mr Modi has, meanwhile, pursued an economic policy of grand promises and bombast. Recent clashes with the Reserve Bank of India have centred on his attempts to boost growth. The outlook was clouded by defaults from a finance and infrastructure group in September. That led to fears for the stability of India’s shadow banking sector. The shadow bank crisis stems in part from the BJP’s grand strategy of demonetisation, removing larger-denomination notes from circulation as a way of delivering on a campaign promise to cut down on the black economy. With Indians forced to deposit old notes at banks, there was a flood of money into the financial sector. Much of this flowed to a growing collection of non-bank lenders, which became a big driver of credit growth as the big state-owned banks grappled with a rash of bad corporate loans. Many Indians supported demonetisation on the premise that it would hurt the undeserving rich. But it failed to remove more than a small portion of black money, while contributing to a sharp economic slowdown last year. In a recent speech before elections in the state of Chhattisgarh, Mr Modi likened demonetisation to a necessary but “bitter medicine”. Unfortunately, the poor have tasted that medicine disproportionately. Mr Modi’s other campaign promises, including infrastructure overhauls and improving manufacturing, have not yet been delivered. Some grandiose pet projects do not help his case. A planned bullet train in his home state of Gujarat epitomises a taste for the high-tech above the practical: it will be too expensive for most citizens. Building the world’s tallest statue, also in Gujarat, cost around $500m. Make in India, Mr Modi’s attempt to turn the country into a manufacturing powerhouse, has so far amounted to little. The BJP’s failings are by no means guaranteed to cost it next year’s election. But winning an election because of a broken opposition should not give Mr Modi’s economic policies a free pass. There have been some successes under the BJP, including revisions of bankruptcy laws. But the BJP has largely failed in its supposed goals to transform India for the better, relying instead on buzzwords, fudging statistics and rebuking its admittedly scandal-tainted opposition. It must begin to fulfil its promises or risk repeating the failures of administrations before it.
#Modi caught fudging #India's #GDP. Study by National Sample Survey Office (NSSO) finds that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified. https://www.livemint.com/news/india/new-gdp-series-faces-fresh-questions-after-nsso-discovers-holes-1557250830351.html
A third of the firms in MCA-21 (Ministry of Corporate Affairs) database used to calculate GDP found dodgy
Results from the MCA-21 database survey were so disappointing that two reports based on it had to be junked
A key database introduced in India’s new gross domestic product (GDP) series has now been found to be full of holes, raising fresh questions over the controversial and contested GDP numbers in Asia’s third-largest economy.
A study conducted by the National Sample Survey Office (NSSO) in the 12 months ended June 2017 and released last week has found that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified.
The results were so disappointing that two detailed reports based on the survey had to be junked. It is worth noting that these companies were deemed as “active companies" by the ministry of corporate affairs (MCA), which includes any company that has filed returns at least once in the past three years on its list of active firms.
Statisticians say the use of the untested database in India’s national accounts also raises troubling questions about the decline of the Central Statistics Office (CSO), which was once a globally renowned institution, and the reliability of India’s official statistics.
“This is a devastating blow for CSO," said R. Nagaraj, a professor at the Indira Gandhi Institute of Development Research in Mumbai. “Some of us had repeatedly asked CSO officials to verify the MCA-21 numbers before using them in national accounts, but they finalized the new series without adequate scrutiny and debate."
The key change in the new GDP series launched in 2015 was the use of MCA-21, which CSO sourced from MCA. Even at the time it was being introduced in the national accounts calculations, several economists had raised questions on this issue (see “The truth behind India’s new GDP numbers", Mint, 2 April 2015). Nagaraj was among the first to raise red flags on this.
Critics argued that the database includes many fictitious or shell firms that exist only on paper. They also said the methodology used to plug in the MCA-21 numbers in the national accounts tends to lend an overestimation bias in the GDP numbers. They demanded the MCA-21 data be released to researchers and the public so that the unit-level data could be examined. Even those who thought the new GDP series represented a great methodological leap by CSO made the same demand.
So far, India’s national accounts statisticians at CSO have defended the use of the new database although they stopped short of making it public. But now, their own colleagues from NSSO have warned about the presence of a large number of ghost firms in the database.
NSSO got into the act while carrying out a survey on the service sector (74th round), supposed to be a first-of-its-kind survey on the service sector. The MCA-21 database was used as part of the sampling frame for the survey as it had addresses and other details of firms. Business registers in states that had such registers and data from the last economic census were the other parts of the sampling frame.
This survey strategy was approved by the National Statistical Commission (NSC) two years ago, and later even a tabulation plan for the two reports that were to be generated on the basis of this survey was approved by it.
#Modi caught fudging #India's #GDP. Study by National Sample Survey Office (NSSO) finds that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified. https://www.livemint.com/news/india/new-gdp-series-faces-fresh-questions-after-nsso-discovers-holes-1557250830351.html
A third of the firms in MCA-21 (Ministry of Corporate Affairs) database used to calculate GDP found dodgy
Results from the MCA-21 database survey were so disappointing that two reports based on it had to be junked
A key database introduced in India’s new gross domestic product (GDP) series has now been found to be full of holes, raising fresh questions over the controversial and contested GDP numbers in Asia’s third-largest economy.
A study conducted by the National Sample Survey Office (NSSO) in the 12 months ended June 2017 and released last week has found that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified.
The results were so disappointing that two detailed reports based on the survey had to be junked. It is worth noting that these companies were deemed as “active companies" by the ministry of corporate affairs (MCA), which includes any company that has filed returns at least once in the past three years on its list of active firms.
Statisticians say the use of the untested database in India’s national accounts also raises troubling questions about the decline of the Central Statistics Office (CSO), which was once a globally renowned institution, and the reliability of India’s official statistics.
“This is a devastating blow for CSO," said R. Nagaraj, a professor at the Indira Gandhi Institute of Development Research in Mumbai. “Some of us had repeatedly asked CSO officials to verify the MCA-21 numbers before using them in national accounts, but they finalized the new series without adequate scrutiny and debate."
The key change in the new GDP series launched in 2015 was the use of MCA-21, which CSO sourced from MCA. Even at the time it was being introduced in the national accounts calculations, several economists had raised questions on this issue (see “The truth behind India’s new GDP numbers", Mint, 2 April 2015). Nagaraj was among the first to raise red flags on this.
Critics argued that the database includes many fictitious or shell firms that exist only on paper. They also said the methodology used to plug in the MCA-21 numbers in the national accounts tends to lend an overestimation bias in the GDP numbers. They demanded the MCA-21 data be released to researchers and the public so that the unit-level data could be examined. Even those who thought the new GDP series represented a great methodological leap by CSO made the same demand.
So far, India’s national accounts statisticians at CSO have defended the use of the new database although they stopped short of making it public. But now, their own colleagues from NSSO have warned about the presence of a large number of ghost firms in the database.
NSSO got into the act while carrying out a survey on the service sector (74th round), supposed to be a first-of-its-kind survey on the service sector. The MCA-21 database was used as part of the sampling frame for the survey as it had addresses and other details of firms. Business registers in states that had such registers and data from the last economic census were the other parts of the sampling frame.
This survey strategy was approved by the National Statistical Commission (NSC) two years ago, and later even a tabulation plan for the two reports that were to be generated on the basis of this survey was approved by it.
#India's incredulous data: #IMF chief economist Gita Gopinath has raised the issue of “transparency” with #Indian officials in data collection and, in particular, measurement of the #GDP deflator - the adjusted inflation rate used to estimate real GDP https://reut.rs/2vL2mcf
Economists and investors are increasingly showing that they have little or no confidence in India’s official economic data – presenting whoever is elected as the next prime minister with an immediate problem.
There have been questions for many years about whether Indian government statistics were telling the full story but two recent controversies over revisions and delays of crucial numbers have taken those concerns to new heights.
The government itself has admitted there are deficiencies in its data collection.
A study conducted by a division of the statistics ministry in the 12 months ending June 2017 found that as much as 36 percent of the companies in the database used in India’s GDP calculations could not be traced or were wrongly classified.
But the ministry said there was no impact on GDP estimates as due care was taken to adjust corporate filings at the aggregate level.
Last December, the government held back the release of jobs data but an official report leaked to an Indian newspaper showed the unemployment rate had touched its highest level in 45 years.
Economists and investors are now voting with their feet – by using alternative sources of data and in some cases creating their own benchmarks to measure the Indian economy.
Ten economists and analysts at banks, think-tanks and foreign funds interviewed by Reuters said they were moving to use alternative data sources, or at least official data of a different kind.
Among the numbers they prefer are fast-moving indicators like car sales, air and rail cargo levels, purchasing managers’ index data, and proprietary indices created by the institutions themselves to track the economy.
Many economists said they were stunned when the government upwardly revised GDP growth for 2016/17 to 8.2 percent from 6.7 percent, although the demonetization of high value notes hit businesses and jobs in that financial year.
“Our response has been to spend time developing an Indian Activity Index, which takes a range of time series data that in the past were strongly correlated with real GDP growth and extract the common signal from them,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments, which manages more than $700 billion in assets.
The preliminary evidence from the index, which includes components like car sales, air cargo and purchasing managers’ index data suggests the government has over-estimated GDP growth, he said.
“Our index would suggest that there was stable growth, rather than the rapid acceleration suggested by the GDP figures,” he said, referring to three years of data from 2014.
Even those close to the government have said the lack of accuracy in the official data makes it much more likely that authorities will miss major swings in activity and be unable to react quickly to head off a crisis. It is also a problem for investors who may be misled into thinking the economy is more robust than it really is.
#India claimed gangbusters #GDP growth. A former government adviser says it was a mirage. #Modi #Hindutva #BJP @CNN https://cnn.it/2I7ZJZ0
Arvind Subramanian was the top economic adviser to the Indian government. Now he says the country's growth may have been overstated.
A change in the method used to calculate India's GDP led to "a significant overestimation of growth," Subramanian writes in a research paper published by Harvard's Center for International Development.
In the paper, Subramanian estimates that India's economy grew at an average of 4.5% a year between March 2011 and March 2017 — far weaker than the 7% average rate reported by the government over that period.
Subramanian tracked 17 different economic indicators that are "strongly correlated" with growth, including electricity consumption, industrial production and commercial vehicle sales.
He found those indicators diverged sharply from the government's growth numbers after 2011, the first year of data affected by the change in methodology.
The paper also found that India's reported GDP growth was far higher than other countries with similar economic characteristics.
"The results in the paper suggest that the heady narrative of a guns-blazing India must cede to a more realistic one of an economy growing solidly but not spectacularly," Subramanian wrote.
A former economist at the International Monetary Fund, he served as the government's chief economic adviser for most of Prime Minister Narendra Modi's first term.
Modi won a second term as India's leader in this year's national election.
Subramanian, who advised the government from October 2014 to June 2018, sought to explain his role on Tuesday.
"Throughout my tenure, my team and I grappled with conflicting economic data. We raised these doubts frequently within government," he wrote in an op-ed published by The Indian Express.
"But the time and space afforded by being outside government were necessary to undertake months of very detailed research ... to generate robust evidence," he added.
The new findings echo concerns expressed by some economists and analysts who have repeatedly said India's growth numbers are "inconsistent" with reality.
The change in GDP methodology was announced in 2015, but applied retroactively to data from as far back as 2011.
Subramanian admitted in 2015 that he was "puzzled" by the revised numbers, telling a local newspaper that the estimates may not necessarily be wrong but "bear further scrutiny."
The government has repeatedly defended the changes to GDP calculation.
"The GDP estimates ... are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy," it said in a statement Tuesday.
As things stand, even the official numbers don't paint a very flattering picture.
India's economic growth slumped to 5.8% in the quarter ended March, according to official data. That's the slowest rate in two years, and one that cost India the title of world's fastest growing major economy.
Ex Chief #Economist Arvind Subramanian: #Modi's reported average #GDP #growth of 6.9% between 2011 and 2016, actual growth was more likely between 3.5% and 5.5%. Cumulatively, over 5 years, level of #India's #GDP might have been overstated by 9-21% https://growthlab.cid.harvard.edu/files/growthlab/files/2019-06-cid-wp-354.pdf
India’s GDP Mis-estimation: Likelihood,
Magnitudes, Mechanisms, and Implications
Arvind Subramanian ( former Chief Economic Adviser to the Government of India)
CID Faculty Working Paper No. 354
June 2019
https://growthlab.cid.harvard.edu/files/growthlab/files/2019-06-cid-wp-354.pdf
The main findings of this paper are the following. First, a variety of evidence—within India and
across countries—suggests that India’s GDP growth has been over-stated by about 2 ½ percentage
points per year in the post-2011 period, with a 95 percent confidence band of 1 percentage point.
That is, instead of the reported average growth of 6.9 percent between 2011 and 2016, actual growth
was more likely to have been between 3 ½ and 5 ½ percent. Cumulatively, over five years, the level
of GDP might have been overstated by about 9-21 percent.
------------
Abstract
India changed its data sources and methodology for estimating real gross domestic product (GDP) for
the period since 2011-12. This paper shows that this change has led to a significant overestimation of
growth. Official estimates place annual average GDP growth between 2011-12 and 2016-17 at
about 7 percent. We estimate that actual growth may have been about 4½ percent with a 95 percent
confidence interval of 3 ½ -5 ½ percent. The evidence, based on disaggregated data from India and
cross-sectional/panel regressions, is robust. Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal
manufacturing sector. These findings alter our understanding of India’s growth performance after the
Global Financial Crisis, from spectacular to solid. Two important policy implications follow: the
entire national income accounts estimation should be revisited, harnessing new opportunities created by
the Goods and Services Tax to significantly improve it; and restoring growth should be the urgent
priority for the new government.
#India’s ex chief economist Arvind Subramanian to produce new paper to defend his claim India’s #GDP is overestimated. Actual growth was just 4.5% from 2011 to 2017. #Modi #BJP #economy
https://theprint.in/economy/arvind-subramanian-to-produce-new-paper-to-defend-his-claim-indias-gdp-is-overestimated/261668/
Former chief economic adviser Arvind Subramanian is set to produce another working paper on GDP estimation, as he looks to address criticism about his claim that India’s GDP was overestimated by 2.5 percentage points.
Subramanian’s previous paper, released last month, had pointed out that India may have only grown at an average of 4.5 per cent in the period 2011-12 and 2016-17, and not 7 per cent as suggested by official estimates.
Using various real sector indicators like exports, credit growth, freight rates and factory output, Subramanian had pointed out that these indicators declined significantly post-2011, but GDP growth rate was hardly affected.
Subramanian’s use of real indicators to measure the GDP came in for severe criticism from economists and statisticians. The Prime Minister’s Economic Advisory Council had pointed out that the methodology used by Subramanian overlooked tax data and didn’t have adequate services sector representation. The council said the correlation between the indicators and GDP growth could change over time.
Subramanian’s defence
Speaking at an event organised by the National Council of Applied Economic Research, Subramanian defended his GDP overestimation claims, saying his framework attempted “not to estimate but to validate GDP growth estimates”.
Discussing a yet to be released follow-up paper to his earlier study, Subramanian said: “India’s overall GDP deflator is substantially underestimated.”
The average differential between GDP deflator and Consumer Price Index (CPI) has increased considerably between the 2002-11 and 2012-16 periods, with CPI exceeding GDP deflator by 0.6 percentage points pre-2011 and by 2.9 percentage points post it, he noted. This underestimation, he said, could be seen as linked to the real GDP growth rate overestimation.
Both GDP deflator and CPI are measures of inflation, and GDP deflator is used as a divisor to estimate real GDP from its nominal counterpart.
Reacting to the arguments made in the past few weeks — that GDP could have grown as a result of government policies or a productivity surge — he went about demonstrating that none of these factors actually explain the high official GDP growth rates post-2011.
Acknowledging that some of the Modi government’s reforms like GST, Insolvency and Bankruptcy Code and welfare schemes like cooking gas and toilets have been truly transformative, he said that they cannot adequately explain the growth in GDP.
He also rejected the productivity surge argument. “It is unlikely that a productivity surge could have taken place under UPA-2 with its considerable policy collapse and a mini-crisis prevailing,” he said.
He identified India’s twin balance sheet problem — the NPA crisis facing its banks and the huge debt burden of its corporates — as one of the major shock events that may have impeded growth.
Aakar Patel
@Aakar__Patel
chief economic advisors a thread
first one (2014-2018) concluded gdp growth was off by 2%. that meant that before pandemic, after slowing for 9 consecutive quarters (2 years and 3 months starting jan 2018) india gdp was growing at only 2%
govt shrugged
https://twitter.com/Aakar__Patel/status/1531851911854714880?s=20&t=_LxmnwCnVe4SAMiaKZ0log
India's GDP growth overestimated by 2.5%, says former chief economic advisor
A new study by former chief economic advisor Arvind Subramaniam says the expansion was overestimated between 2011 and 2017
Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper
Read more at:
http://timesofindia.indiatimes.com/articleshow/69738363.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
----------------
Aakar Patel
@Aakar__Patel
his successor (2018-21) asked govt to release its own survey which showed indians were consuming less (incl on food) in 2018 than they were in 2012.
govt has not released survey
https://twitter.com/Aakar__Patel/status/1531852392399900672?s=20&t=_LxmnwCnVe4SAMiaKZ0log
Economic adviser prod to release consumer expenditure survey report
After the demand was made by Subramanian, the government is at present considering its release
https://www.telegraphindia.com/india/economic-adviser-prod-to-release-consumer-expenditure-survey-report/cid/1806405
A year after the NDA government withheld the release of a consumer expenditure survey for suspected discomfort over unfavourable findings, its chief economic adviser Krishnamurthy Subramanian has demanded its release, a minister has informed Parliament.
In response to a question in the Rajya Sabha by Congress members L. Hanumanthaiah and G.C. Chandrasekhar who wanted to know if the chief economic advisor had demanded to make the survey report public, minister of state for statistics and programme implementation Rao Inderjit Singh said in a written reply: “Yes Sir”.
The National Statistics Office (NSO) under the ministry of statistics and programme implementation had conducted an all-India survey on household consumer expenditure from the period July 2017 to June 2018. But the ministry decided not to release the report citing a higher divergence with the administrative data. According to a report in Business Standard, the survey found a fall in consumer spending for the first time in more than four decades.
After the demand was made by Subramanian, the government is at present considering to release the report.
“The ministry has followed a rigorous procedure for vetting of data and reports which are produced through surveys. The results of this survey were examined and it was observed that there was a significant variation in the levels in the consumption pattern as well as in the direction of the change while comparing with other administrative data sources. The matter is being looked into and finalisation of the results of the Consumer Expenditure Survey 2017-18 is under consideration,” the minister said.
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He went on to question whether the GDP data correlated with the “actual GDP” being produced by the underlying sectors of the economy.
“So, even if you look at the core sectors, whether it is steel, cement, so on and so forth, no where it is correlating with the kind of possibly overall GDP growth in terms of what we are kind of talking of,” he said.
“So, we are also looking at ways and means in terms of finding out what is the real GDP,” Syngle added.
His comments come at a time when India’s FMCG sector spent the financial year 2023-24 struggling to increase sales. Asian Paints saw its revenue grow 2.6 percent in the financial year 2023-24, significantly slower than the 19.4 percent revenue growth it saw in the previous financial year.
Hindustan Unilever, India’s largest FMCG company by market capitalisation, reported an anaemic 2 percent growth in revenue in 2023-24. This is down from a 15.5 percent revenue growth in 2021-22.
ITC, too, saw only a 2 percent growth in its revenues in the third quarter of FY24, the latest period for which it has declared results.
Simultaneously, the government is estimating that India’s GDP would have grown 8 percent over the course of 2023-24.
This number doesn’t really represent the growth in India when looking at particular regions or sectors of the country, according to Syngle.
“The correct GDP in terms of what would really be applied to a certain sector is something which I think we need to work and find out,” he said. “Because the GDP is also varying from region to region. If you look at possibly certain regions in the country, some regions are growing faster, some regions are growing slower, but when you get the GDP number overall, that’s a conglomeration of a full number.”
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