Monday, February 9, 2015

India Fudging GDP to Show Faster Growth Than China?

Indian government now claims that the country's GDP grew by 6.9% in 2013-14, well above the 4.7% growth the country had announced earlier.

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?

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 official GDP figures are not new. These have been raised by many top economists. For example,  French economist Thomas Piketty argues 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. "

Related Links:

Haq's Musings

India-Pakistan Economic Comparison 2014

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


Riaz Haq said...

Even the RBI’s Rajan is Confused by India’s New GDP Numbers

India’s statistics ministry dropped a bombshell revision of recent GDP data Friday evening, provoking some head-scratching among economists trying to make sense of the incredible (in both senses of the word) new numbers. Growth of 6.9% in the 2014 fiscal year instead of 4.7%!

Had we all been “horribly wrong” about the Indian economy? Was the previous, Congress party-led government voted out on specious premises? Were the data fudged?

On Tuesday, Raghuram Rajan kept a cooler head.

“I don’t want to say anything about the numbers until we understand them better,” the Reserve Bank of India governor told reporters after announcing his decision to hold the policy interest rate at 7.75%. He said it would be “premature to take a strong view” based on the updated data. The central bank also kept its forecast for GDP growth for the year that ends next month at 5.5%—and, notably, continued to report the forecast using the old base year.

GDP growth in a year that ended nearly 11 months ago might not be the most immediately pertinent data point for deciding today’s monetary policy. But Mr. Rajan’s hesitation about embracing the new figures at least shows that policy makers aren’t junking their old narratives about the economy until the new GDP methodology yields a more-complete picture of recent trends.

Mr. Rajan, like others, pointed to the preponderance of other data that show continued stagnation that year: falling imports, sluggish auto sales. “We find it hard to see the economy as rollicking in 2013-14,” he said.

“I am puzzled by the new GDP growth numbers,” said Arvind Subramanian, the government’s chief economic adviser, in an interview with the Business Standard newspaper. He noted that the year that ended March 2014 was a crisis year for India, the year of the “taper tantrum,” capital outflows, the roiled rupee and RBI monetary tightening.

“I am not saying these [GDP] estimates are wrong in any way, only that these bear further scrutiny,” Mr. Subramanian said.

Of course, it’s not as if the RBI could have changed its forecasts on a dime even if it had wanted to. Most industrial-grade models used for such purposes rely on quarterly data to assess the dynamics of the economy.

Rudrani Bhattacharya of the National Institute of Public Finance and Policy in New Delhi said that with only the revised 2012-13 and 2013-14 annual growth rates available so far, the best she can do is use some simplistic assumptions to generate a quick-and-dirty revised forecast: “a mere scenario analysis,” she said.

Next Monday’s data release—when we’ll get GDP for each of the last three quarters as well as an advance estimate of growth for the whole fiscal year—is still the one to watch

Anonymous said...

You might want to read this. Not that I expect you to change your hatred for India.

Anonymous said...

That's the thing in all rebasings the GDP bumps up by 10-20%(like Pakistan's).That has not been done so this is not a open and shut case of data fudging.

But then what is it?

Riaz Haq said...

India’s “new and improved” GDP statistics are asking investors to suspend their disbelief. Revised data suggests that growth zoomed in the year to last March, just as the country tightened fiscal and monetary policies to tame inflation, narrow the current account deficit and prevent a currency crisis. Such a thing has not happened in any major economy in at least three decades.

The new calculations, released on Jan. 30, have moved the measurement of national income closer to international norms. But in doing so, India’s official statisticians have produced a puzzling new version of history: the old numbers put the expansion in output in fiscal 2014 at a pedestrian 4.7 percent. Under the new method, growth that year accelerated to 6.9 percent.

The original number was more realistic, and not just because a second year of sub-5 percent growth played a role in helping opposition leader Narendra Modi become prime minister with a landslide election victory.

In the first quarter of that fiscal year the U.S. Federal Reserve hinted at tapering its quantitative easing programme. The rupee collapsed as investors baulked at financing large external deficits in emerging markets. India had to raise interest rates, restrict gold imports and curb budgetary excesses. Though a cheaper currency helped boost exports somewhat, oil prices were still high. The massive fall in imports couldn’t have taken place without domestic demand taking a hit.

By the end of the fiscal year, India’s dependence on foreign capital inflows had dropped by 3 percentage points of GDP. The amended statistics show the same picture. But this lesson in self-reliance now appears to have been puzzlingly painless. The new calculations show growth accelerating by 1.8 percentage points, from a revised 5.1 percent in fiscal 2013.

That conclusion stretches credulity. No large economy has pulled off such a big improvement in its external balance at the same time as such a handsome pickup in output, according to a Breakingviews analysis of 189 nations over 33 years.

Indian officials will most likely have to revise their conclusions. For now, though, investors will miss the old data. For all its faults, it was a more reliable compass. India’s posh new GDP statistics look too good to be true.

Anonymous said...

What ever but we are enjoying in India, now peoples are not investing in Real estate and Gold, price are stable, and our Savings in ULIP are increasing fast due to growing Sensex 28000+,
Make in India working for us, we are getting lots of inquiries for business then before.
this is true market is better then before, and we are getting benefits.

Shams said...

GDP numbers are at best a guestimate by the estimating institutions. How much of US agriculture depends on illegal Mexican and Central/South Americans? Over 59%. And those workers' wages go undocumented. Also undocumented are all the monies that big oil makes (Apple too), and somehow funnels outside of the US, such as to Ireland.

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Riaz Haq said...

From WSJ:
Much of the information about the new GDP method had already been made public in a 144-page document released last month. But who has the time? Here are some highlights.

1. In India, all cars used to be equal. In earlier Indian GDP data, the key manufacturing indicator was the monthly index of industrial production, which is based on the total quantity of output in a sample of a few thousand factories.

“The problem is that Marutis and Audis are all put together as the same,” said Ashish Kumar, director-general of the Central Statistical Office. In other words, by gauging only the volume of production, the old series was overlooking changes in monetary value brought about by product improvement and differentiation.

In the old GDP series, a yearly survey of industrial firms supplemented the production index when it became available. But that survey, too, has a limitation: Because it measures activity at the factory level, it doesn’t account for the marketing, development, logistics and financial-planning activities that take place at manufacturing firms’ head offices.

“In the earlier series, we were not capturing this,” Mr. Kumar said. “Because we never had access to any such information.”

The new GDP series therefore incorporates a new database of company balance sheets from the Ministry of Corporate Affairs. For the year ended March 2012, the database includes information from more than 500,000 firms. A central-bank study that had been used previously to gauge corporate activity covered fewer than 2,500 companies.

The impact on final growth rates is huge—and still slightly hard to swallow. In the 12 months that ended March 2013, manufacturing expanded 6.2% in the new GDP series, compared with 1.1% in the old. And in the following year, for which the old series had shown a 0.7% contraction, the new series has manufacturing growing by 5.3%.

2. All workers used to be equal, too. Well, at least for gauging activity in the informal economy. Small, unregistered companies—a major chunk of the Indian economy—typically employ unpaid helpers in addition to owners and hired workers. But before, these firms’ output was being estimated by taking the total number of workers and multiplying by per-capita added value.

No longer. The new GDP series uses an “effective labor input” method, which assigns different weights to different kinds of workers based on their productivity. The chart is here:

3. Agriculture isn’t just about crops, and livestock isn’t just about meat. Two major changes in the agricultural component of the new GDP series have to do with livestock. The first is a new way of valuing “meat byproducts.” State governments had been failing to provide direct data on the values and quantities of animals’ heads, legs, fat and skin on a “systematic and regular basis.” So, thanks to a study by the National Research Center on Meat, in Hyderabad, these are now being recorded simply as a share of the total value of the animals’ flesh.

Yum. “EOG” stands for “edible offals and glands.”

The second major change to livestock measurement has to do with a different kind of byproduct. “For the first time, we have included the evacuation rate of goats and sheep in the production of organic manure,” said Sunil Jain, a deputy director-general at the statistics office.

Translation: Using a study on how much those animals defecate, statisticians have added that particular kind of biological output to their economic value.

The estimated “evacuation 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.

Riaz Haq said...

Ashish Kumar, the head of India's statistics office, has faced two months of questioning about how a new way of measuring GDP created the world's fastest-growing major economy overnight.

It's unlikely to end any time soon.

Until early February, when Kumar's office 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.

Policymakers were flummoxed by the statistical transformation, particularly as the revised data was released without a historical series, making it hard to put the number in context or understand what it was saying about the economy.

"The day starts with a question and ends with a question," Kumar told Reuters. "Almost every week we keep getting queries from RBI and the finance ministry about the data."

"We are trying to compile a historical series and hope to provide it by the end of December," he said.

Until then, the questions may keep on coming - a state of confusion that is persisting to the point where it risks wrong-footing financial markets and even policymakers.The statistics office has set up an internal panel to audit the data and invited an International Monetary Fund team to review it. The IMF review starts on April 22.

Last week, the Reserve Bank of India (RBI) pointed out several gaps in the new figures, which it said clouded an accurate assessment of the economy and could lead to poor policy.

Others have been more scathing in their criticism. Morgan Stanley's Ruchir Sharma, for example, has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

The statistics office says the new calculation, which measures GDP by market prices instead of factor costs, is more in line with global practise and helps to better understand the structural changes taking place in the economy.

The RBI and finance ministry agree, and aren't questioning the decision to change the methodology. But they can't reconcile the data with other indicators showing less vibrant growth.

For example, the new, robust expansion doesn't correspond to subdued corporate earnings and weak industrial production - and statisticians disagree over the way a new data set is used.

The statistics office attributes the divergence to the use of an improved database of hundreds of thousands of private companies. Previously, a small sample of large firms was used.

But R. Nagaraj, an independent member of a government-appointed panel that first suggested using the companies database to calculate GDP, says the mismatch reflects a decision to extrapolate the new data instead of taking it as a straight reading of output.

As a result, Nagaraj said, gross value addition in manufacturing is more than double the figure his panel's suggested methodology would have produced.

Kumar, the head of the statistics office, said the rationale was to make the samples comparable over a period of time.

"There has to be some benchmarking so that you compare the comparable," Kumar said. "We haven't come across any defect in our methodology."

"We don't have any political agenda," Kumar said. "Whatever questions are coming, we are answering them."

Riaz Haq said...

Former central bank governor Dr Y V Reddy once quipped to me that while the future is always uncertain, in India even the past is uncertain, given how often the government revises economic data. Even by that standard, however, the dramatic upward revision of the GDP growth rate is a bad joke, smashing India’s credibility and making its statistics bureau a laughing stock in global financial circles.
The new and not-so-funny numbers show that the Indian economy grew at a pace of 6.9% in the last fiscal year, a claim that is fantastic in the extreme. Many Indian economists have set out to show that the new growth numbers for the economy as a whole simply don’t add up, as a sum of the parts. Every piece of data — from the tepid increase in corporate revenues to imports, credit, rail freight and auto sales — points to a much lower growth figure, probably closer to the old estimate of 5%.
Surprisingly, for a country obsessed with its GDP growth rate, there is not much outrage at this travesty, either in public or at cocktail parties. In the past, India’s habit of revising economic data was confined to relatively minor tweaks, but this latest update is a wholesale rewriting of history. In the international financial community, no one had questioned the veracity of India’s economic numbers, until now.
This makes India look bad even compared to China, which many analysts have long suspected of massaging GDP figures to show steady growth. But the same sceptical analysts admit that when China manipulates its numbers, it does so carefully and only when the actual growth rate falls below its official target, as it has of late. The authorities seem to know exactly what they are doing. India’s new GDP data clashes even with the pronouncements of some government and central bank officials, suggesting that the left arm doesn’t seem to know what the right arm is doing.
The whole episode is reinforcing the bad rap India gets for poor governance standards. To be sure, many emerging nations including Turkey and Nigeria have issued flattering upward revisions of their growth data in recent years, but generally without eliciting peals of laughter. Last year, Nigeria issued a revision showing that the economy was nearly twice as large as previously reported, but it was widely accepted because the new methodology was well explained and had the endorsement of the International Monetary Fund.
The IMF in fact recommends that, every five years, countries update the base year they use to calculate the pace of growth in the economy. The idea is to capture the impact of new growing industries, and Nigeria hadn’t updated its base year since 1990. India’s last revision came in 2010, so this one came on schedule. Only the statistics bureau clearly rushed it into print, without conducting even an elementary ‘smell test’ to ensure that the new numbers square with the reality on ground. One clear sign of the bureau’s haste to publish is the fact that it released revised data for only the last two years, making it impossible to see the long-term trend for India’s growth rate.
Nobody really believes that the Indian economy grew at anywhere close to 7% last year, and shockingly no one is willing to put an end to this nonsense. When India delivers its budget on February 28, officials are likely to claim that economic growth in the coming year will accelerate to around 8% — a figure based on the new series. A forecast based on dodgy numbers will only cast doubt on India’s claim to be the world’s fastest-growing large emerging market, though that claim could easily prove true in a couple of years, based on credible numbers.

Riaz Haq said...

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
(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.

Riaz Haq said...

Continuing confusion over #India GDP official stats. Deflator Problem 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?

Riaz Haq said...

Falling #Indian exports raise questions about #Modi's #GDP growth claims and Make in #India …

The slump in exports by 20.1% in August seems to have finally set alarm bells ringing as the exporters are now demanding that both the prime minister and commerce minister step in to help and prop up the sector. The demand is reasonable given that exports have now fallen for the ninth consecutive months dragging down total exports by 16.2% in April-August 2015-16. It is also worrisome because the fall in exports have now stretched into the second year having already fallen by a marginal 1.2% in 2014-15.

So far the government has tried to cover up the discordant trends on the trade front by pointing to the steady improvement in the current account deficit numbers which have now fallen to around 1.2% in the most recent quarter after peaking at above 5% just a few years back. However, the fall in current account deficit has little to do with export performance as it happened largely to the slump in oil prices and the restraints placed on gold imports.

But now the scenario has deteriorated far below acceptable levels. Exports as a percentage of the GDP has fallen from a high of 16.8% of the GDP in 2011-12 to 15.4% in 2014-15. The fall in goods exports has substantial repercussion not only on growth of the economy and also on the NDA governments much vaunted Make in India programme. Studies have pointed out that few countries have been able to grow at 7% plus growth rates based on domestic demand alone.

Numbers for the first five months of the year show that the fall in exports have been across board. Asia, which is India’s largest export market accounting for almost half the total exports, has been badly effected with exports declining by 16.2%. The scenario was no different in the EU, our second largest export market that accounts for close to a fifth of our imports, which also saw exports decline by 10.5%. Worse effected was West Asia our third largest market where exports fell by 16%. Markets in Asean also registered a fall of 22.7%. The only consolation was the exports to USA, which accounts for 16% of our total exports, registered a minimal fall of 1.1%.

Riaz Haq said...

If #India economy is really growing 7.4%, why is consumer sentiment at 3-year low? Is #Modi fudging GDP? #BJP …
The survey shows that not only are consumers worried about current conditions, they also don’t expect any improvement in the medium term. Photo: Ramesh Pathania/Mint
Indian consumers are turning increasingly pessimistic about the economic recovery. The MNI India Consumer Sentiment Indicator, from Deutsche Borse, fell to a three-year low in September, suggesting that demand continues to be lacklustre. That sentiment is completely out of sync with the rosy estimates of gross domestic product (GDP) growth. The survey shows that not only are consumers worried about current conditions, they also don’t expect any improvement in the medium term.

“Seen through the eyes of our survey respondents… the short- to medium-term outlook looks less compelling, with consumer confidence at a record low and little sign of a quick turnaround, ” said MNI chief economist Philip Uglow.

Simply put, the 75 basis points rate cut that happened from January to September wasn’t good enough to boost demand and convince consumers that things will improve. One basis point is one-hundredth of a percentage point.

It’s not just consumer sentiment that is pessimistic. Expectations for business conditions improving one year from now fell to their lowest since September 2013, when India was battling a sharply depreciating rupee. Besides, consumers were the least optimistic about their household finances, with both current and future measures of personal finances falling to record lows.

This level of pessimism ties in with other indicators as well. For instance, the Nikkei Purchasing Managers’ Index (PMI) for India shows there has been no improvement in manufacturing employment since the Narendra Modi government took charge at the Centre.

In September-end, the Reserve Bank of India (RBI) cut rates by another 50 basis points to boost demand. It remains to be seen whether it will boost the much-needed confidence.

“So far the rate cuts have had little impact, with consumers particularly concerned about their finances. The recent cut in the policy rate by RBI should help, although for now our survey suggests that household spending will remain capped,” said Uglow.

Riaz Haq said...

If #India economy is really growing 7.4%, why is consumer sentiment at 3-year low? Is #Modi fudging GDP? #BJP …
The survey shows that not only are consumers worried about current conditions, they also don’t expect any improvement in the medium term. Photo: Ramesh Pathania/Mint
Indian consumers are turning increasingly pessimistic about the economic recovery. The MNI India Consumer Sentiment Indicator, from Deutsche Borse, fell to a three-year low in September, suggesting that demand continues to be lacklustre. That sentiment is completely out of sync with the rosy estimates of gross domestic product (GDP) growth. The survey shows that not only are consumers worried about current conditions, they also don’t expect any improvement in the medium term.

“Seen through the eyes of our survey respondents… the short- to medium-term outlook looks less compelling, with consumer confidence at a record low and little sign of a quick turnaround, ” said MNI chief economist Philip Uglow.

Simply put, the 75 basis points rate cut that happened from January to September wasn’t good enough to boost demand and convince consumers that things will improve. One basis point is one-hundredth of a percentage point.

It’s not just consumer sentiment that is pessimistic. Expectations for business conditions improving one year from now fell to their lowest since September 2013, when India was battling a sharply depreciating rupee. Besides, consumers were the least optimistic about their household finances, with both current and future measures of personal finances falling to record lows.

This level of pessimism ties in with other indicators as well. For instance, the Nikkei Purchasing Managers’ Index (PMI) for India shows there has been no improvement in manufacturing employment since the Narendra Modi government took charge at the Centre.

In September-end, the Reserve Bank of India (RBI) cut rates by another 50 basis points to boost demand. It remains to be seen whether it will boost the much-needed confidence.

“So far the rate cuts have had little impact, with consumers particularly concerned about their finances. The recent cut in the policy rate by RBI should help, although for now our survey suggests that household spending will remain capped,” said Uglow.

Riaz Haq said...

#India’s economic recovery much slower than expected: BofA Meryl Lynch Trims GDP growth from 6% to 5.5% for 2015-16 …

Global financial services major Bank of America Merrill Lynch on Monday said Indian economy is recovering at a much slower-than-expected pace, but faster enough to overtake Brazil and Russia to become the second largest emerging market after China.

The firm on Monday also trimmed its growth forecast for India to 5.5% from 6% for the current fiscal, as per the old GDP series. As per the old series, the base year for calculation of national accounts was 2004-05.

“Is recovery happening? Yes, but even more slowly than we expected. At the same time, India’s relatively faster growth is allowing it to overtake Brazil and Russia in GDP to emerge as the second largest emerging market after China,” BofA-ML said in a note.

The Central Statistics Office (CSO) has now adopted the new series of National Accounts with 2011-12 as base year and subsequently revised the Gross Domestic Product (GDP) growth rate to 6.9% in 2013-14 from 4.7% and 5.1% in 2012-13 from 4.5%.

The RBI has also lowered its economic growth forecast for the current fiscal to 7.4% from its previous projection of 7.6%. The April-June quarter GDP slipped to 7% from 7.5% in the preceding quarter. “We have cut our GDP forecasts to 5.5% from 6% for 2015-16 and to 6.5% from 7% for 2016-17 (in the old GDP series) on poor rains as well as delays in global recovery and domestic lending rate cuts,” it added.

The global brokerage firm said that the coming months could see a consumption recovery largely driven by four factors -- softer lending rates, public sector salary hikes after the 7th Pay Commission, household savings on lower oil prices and a possible hike in wheat MSP before the early-2017 Punjab/UP polls.

On RBI rate cut, BofA-ML said, “We expect the RBI to cut another 25 bps in February after it meets its under-6% January 2016 inflation mandate.” Reserve Bank Governor Raghuram Rajan, on 29 September, effected a more-than-expected interest rate cut of half a per cent to boost the economy.

Riaz Haq said...

French Economist-Author Thomas Piketty to #India’s "Hypocritical" "Self-Serving" Elite: ‘Learn From History’

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.”

Riaz Haq said...

High joblessness in #Modi's #India forces 75,000 high-school & college grads to beg on the streets via @timesofindia

"I may be poor but I am an honest man. I beg as it fetches me more money, Rs 200 a day. My last job of a ward boy in a hospital got me only Rs 100 a day," said Dinesh Khodhabhai (45), a class 12 pass who can speak half-way decent English.
Dinesh is part of a motley group of 30 beggars who seek alms around Bhadra Kali temple in Ahmedabad. Before their work begins, they sip hot tea offered gratis by a city philanthropist.
Sudhir Babulal (51) is a third-year BCom fail beggar who earns Rs 150 per day. Sudhir had come to Ahmedabad from Vijapur town with dreams of a good life but masonry jobs were erratic, fetching him Rs 3,000 for a 10-hour shift and nothing for weeks on end. "After my wife left me, where was the need to keep a house? I sleep on the riverfront and beg," said Sudhir.
Dashrath Parmar (52), who has an MCom degree from Gujarat University, is another pan-handler. This father of three, who aspired for government service but lost even the private job he had, today lives off free meals offered by charity organizations. His mother is hospitalized.
Ashok Jaisur, who cleared high school from Mumbai, begs in Lal Darwaza area. He left his job as a security guard after he lost sight due to cataract and now begs.

"I have only one wish: to make my son Raj an animator," says Ashok who feeds his nine girls and wife from income earned off the streets.
"It's difficult to rehabilitate beggars as they get lured back due to easy money," says Biren Joshi of Manav Sadhana, an NGO working with beggars.
"People with degrees turning to begging reflects the grim employment scenario. People turn to soliciting alms when they do not get decent jobs and have no social support to fall back on," says sociologist Gaurang Jani.

Riaz Haq said...

Reserve Bank of #India Governor Raghuram Rajan sceptical about GDP calculation. #Modi #BJP 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:

Riaz Haq said...

#India revises recent past GDP growth estimates downwards. Not growing faster than #China …

India's government said Friday that economic expansion in the past few years was slightly slower than previously estimated, in the first revision to controversial new statistics that show India zooming ahead of China in 2015 to become the world's fastest-growing major economy.

Year-over-year growth in India's output was 7.2% for the 12 months that ended March 31, 2015, the Statistics Ministry said, down from the previous calculation of 7.3%. For the year prior, the growth estimate was cut to 6.6% from 6.9%. Expansion in the year before that was bumped up to 5.6% from an initial reading of 5.1%.

The scheduled updates were the first tweaks to India's data on annual gross domestic product since the country's statisticians a year ago revamped their methods and data sources for estimating GDP, a broad measure of an economy's total output.

Friday's modest revisions, based on additional data that have come in since last year, are likely to reassure analysts and India watchers that the new figures are trustworthy.

They also lend credence to the perhaps more-startling conclusion yielded by the revised calculations: that at 7% or more in the first three quarters of 2015, India's growth is besting China's as the latter country's construction and investment boom cools.

Questions about India's new statistics are likely to persist, however.

"Understanding the real economy and the pace and strength of economic recovery is unusually difficult this year," the Finance Ministry wrote in a December paper.

Last year's GDP revision was long in the works, part of a regular process of updating the reference year for marking economic trends. Indian statisticians tapped fresh data on mom-and-pop stores, mutual funds and livestock. They also adopted techniques that bring the GDP computation more in line with United Nations guidelines.

Few economists believe India's statistics suffer from political meddling, as is widely thought to be the case in China. But even Indian officials have been flummoxed by the disparity between the fast clip of GDP growth and other signs that the economy has for years been plodding ahead at best.

In 2012, the government's budget deficit swelled, sapping private investment. Inflation shot up. Corruption scandals hurt the credibility of the administration of the day, led by the Congress party.

India was also battered by global forces. In 2013, after the U.S.Federal Reserve hinted that it might soon taper its bond-buying program, capital that had been funding higher-yielding investments in emerging markets suddenly took flight. The rupee plunged, impelling the central bank to keep interest rates high.

By the old GDP numbers, 2013 and 2014 were the first two fiscal years to see consecutive growth of below 5% since the 1980s.

Now, by Friday's updated data, growth in those years was 5.6% and 6.6%, respectively. If output was expanding so quickly even in that period of tumult, some economists hypothesize, then at full steam India's annual growth could be in the double digits.

That will be hard to confirm without more years of revised GDP estimates. The statistics office says it is still working to produce refreshed figures from as far back as 2005. Output data for the final quarter of 2015, and the first advance estimate of growth in the 12 months that end on March 31, are due to be released on Feb. 8.

"More than the revision, what we're keen on is what's happening with the past series," said Anurag Jha, a Citigroup Inc. economist in Mumbai. Right now, he said, "we are working with all these uncertainties."

Read more:

Riaz Haq said...

#India's GDP numbers are so dodgy that even the nation's central bank has doubts about them. #Modi #BJP via @qzindia

The skepticism arrived soon after India’s Central Statistical Office (CSO) put out revised GDP numbers last January.
India’s chief economic advisor, Arvind Subramanian, said he was puzzled and mystified by the revised estimates based on a new methodology, which instantly raised the country’s GDP growth from 4.7% to 6.9% for the 2013-14 fiscal year. Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management, called it a “bad joke.” And Raghuram Rajan, the governor of the Reserve Bank of India (RBI), said he didn’t want to talk about it until he understood the numbers better.
A whole year later, institutions like the RBI are so befuddled—and seemingly unconvinced—by India’s revised GDP numbers that they are looking at a range of other indicators to understand the true state of Asia’s third-largest economy.
“Like other economists, the RBI is now turning to hybrid models that mix elements of the old and new GDP methods to get a better feel for the underlying health of the economy,” Reuters reported on Feb. 5.

In particular, India’s central bank is tracking two-wheeler sales, car sales, rail freight, and consumer goods sales in rural areas “to get a better understanding of the ground realities,” an RBI official told Reuters. Quartz has emailed the RBI for comment, and will update if the bank replies.
The key contradiction is that even as prime minister Narendra Modi makes public declarations of India’s newfound status as the world’s fastest-growing major economy, key sectors such as manufacturing and agriculture are still stuck in a rut.
“The economy is recovering but it’s hard to be very definitive about the strength and breadth of the recovery for two reasons—economy is sending mixed signal and second there is some uncertainty how to interpret GDP data,” Subramanian explained late last year.

Riaz Haq said...

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

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:


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

Economic adviser prod to release consumer expenditure survey report
After the demand was made by Subramanian, the government is at present considering its release

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.

Riaz Haq said...

The Economist exposes Modi's fudged numbers to show lower multidimensional poverty.

It deals with the definitions used by the Modi government......such as the definitions of village electrification and open defecation.

Modi government claims the entire village is electrified with "only public buildings and 10% of households" electrified.

Modi gov't also calls villages "open defecation free" even when millions of people are still defecating in the open.

All of this false "multi-dimensional" data manufactured by Modi gov't is used by the UNDP report. That's reflected in a dramatic reduction in India's "multidimensional poverty" on Modi's watch.

"Narendra Modi often overstates his achievements. For example, the Hindu-nationalist prime minister’s claim that all Indian villages have been electrified on his watch glosses over the definition: only public buildings and 10% of households need a connection for the village to count as such"

"And three years after Mr Modi declared India “open-defecation free”, millions of villagers are still purging al fresco. An absence of up-to-date census information makes it harder to check such inflated claims. It is also a disaster for the vast array of policymaking reliant on solid population and development data"