What’s the right number?

The latest GDP series, with the base year revised to 2011-12 from 2004-05, has caught economy watchers off-guard. Suddenly, the growth rate for 2013-14 has jumped from 5 per cent to 6.7 per cent, giving rise to the question: Is the Indian economy as badly off as we assumed? With manufacturing teetering between slowdown and recession, core sector output limping along and inventories building up, the statis in activity cannot be brushed aside by a mere statistic. There are other telltale factors such as anaemic growth in bank credit, rising NPA levels, sluggish employment and flat corporate toplines. Growth is best gauged by a set of indicators and not by an isolated number with scope for error. That said, the 6.7 per cent figure is not without significance: it sheds a new perspective on India’s potential rate of growth. Suddenly, China’s average growth rate of about 10 per cent for nearly two decades since 1990 does not seem beyond reach.

There is no disputing the need for periodic base revisions to our economic statistics. The Central Statistical Office does this every four or five years, to capture structural shifts in the economy. The last two such exercises, conducted in 2010 and 2006, did not result in a dramatic change in overall growth numbers. They were more pronounced in sectoral GDP rather than in GDP growth as a whole. Agriculture GDP and manufacturing GDP actually fell in absolute terms when the base year was moved from 1999-2000 to 2004-05 five years ago, while ‘financing, insurance, real estate and business services’ and ‘community, social and personal services’ output saw a spike. What marks out the present revision is the move to abandon the factor cost approach for basic prices. Absolute GDP at basic prices is higher than GDP calculated on the basis of factor cost but lower than GDP at market prices; the last decade’s data bears this out. However, this still does not explain the increase in growth rates. The Centre should dispel the air of mystery and put out a fresh GDP series so that comparisons with earlier periods become easier.

India’s economic statistics are far from reliable. For instance, the factory index underestimates output because it under-represents small enterprise. It requires major revisions when data from the Annual Survey of Industries, available once in two years, becomes available. Services output is calculated from a data base drawn from a melange of surveys — the National Sample Surveys on employment and Enterprise Surveys conducted every five years along with follow-up surveys during intervening periods — of uncertain quality. Both, the output per worker and the number of workers, the latter drawn from NSSO rounds, for a year are ‘extrapolated’ from earlier surveys, a euphemism for guesswork. Till our data bases acquire a measure of precision, it is best not to take them literally. A multiple indicators approach, along with a dose of commonsense, can serve us just as well.

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