The Hindu Business Line : Beneath the numbers

An undue concern with numbers can be dangerous if it blinds policymakers to the real issues at hand. New Delhi must concern itself with the currents under the data.

With the Central Statistical Organisation (CSO) pegging advance estimates for 2007-08 GDP growth at 8.7 per cent, policy-makers seem divided on how the economy will pan out in the coming fiscal and beyond. Though India will stand as the second fastest growing economy in the world after China at anything over 8 per cent, predictions by the Finance and Commerce Ministries seem more optimistic than those of the Reserve Bank of India — around 8.5 per cent — an d the Prime Minster’s Economic Advisory Council — less than nine per cent. Just last week, the Finance Minister, Mr P. Chidambaram’s confidence took courage from the CSO’s revised estimates for 2006-07 and the previous year, both of which were pegged upwards of 9 per cent. Not surprising that the Finance Minister should feel disappointed at the CSO’s “conservative” estimate for the current year.

An undue concern with numbers can be dangerous if it blinds policymakers to the real issues at hand. Whether growth is a half per cent point lower or not is not the worry, since it is still commendable at a time when the developed economies seem to be unravelling. New Delhi must concern itself with the currents under the data. Agriculture, for instance, is projected at 2.7 per cent from an earlier estimate of 3.7 per cent. Mr Chidambaram feels this is perhaps the cause of the projected slide in 2007-08. But for 2006-07, the CSO had revised its agriculture forecast upwards from 2.7 per cent to 3.8 per cent; yet the impact on GDP growth rates was minimal with revised GDP estimates showing a slight climb from 9.4 per cent to 9.6 per cent, confirming a trend of the relative isolation of the rural sector all the years the GDP was climbing upwards of seven per cent.

Data also reveal that consumer spending, the supposed driver of the current growth, has been declining since interest rates began to harden, as evidenced in declining credit growth since last year. But data on consumer expenditure in relation to investments since 2003-04 suggest that even with a steady increase in both, investments have been the consistent driver of growth. High interest rates have dampened consumer expenditures but not investments. But softening interest rates alone will not boost consumer demand since the real culprit is the uneven spread of purchasing power. Exports have helped lift output so far, but the strong rupee and a weak global economy will re-script the story sooner than later. Various surveys suggest a decline in business expectations. Policymakers can combat this pessimism far better with policies aimed at enlarging the purchasing power of those with little than with gung-ho cheer about a de-coupled economy.

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