For whose benefit are upward revision in growth numbers?

Last month, the government threw up a surprise by officially announcing that India’s economy was about to grow faster than China. In fact, it has already grown quicker than China in the quarter (October-December) just gone by. It was made possibly by recalculating the economic growth of past two years by using a new method when the Indian economy had performed one of its worst.

An economy logging a 4.7 per cent growth suddenly jumped close to 7 per cent. Who would believe that when all other indicators were showing a dismal performance, the aggregate would be so spectacular? No one did. Not even the government’s own policy makers. The chief economic adviser of the BJP government said that he was puzzled by the growth numbers and the data needed a further scrutiny.

The Reserve Bank of India Governor Raghuram Rajan too could not embrace the numbers. He found it hard to see the economy “rollicking” in 2013-14. The Congress, however, rejoiced because the data pertained to their period that the UPA it headed was ruling. It was somewhat scared that the statisticians who made such an upward revision in the economic numbers for the period of opposition-ruled India may get marching orders.

But, a week later, using the same methodology, the same set of statisticians gave projections that the economy will grow even more spectacularly under the current dispensation. Was the methodology changed only to benefit the BJP government and in the process the previous Congress-led government too benefited?

Amid persisting demand for an explanation of a sudden jump in the economic growth numbers, the government again came out with a new methodology of calculating inflation. According to this, the price rise in the current year will look lower than in the previous year (2013-14).

The price situation in the country will look a lot more better than it actually is.  The consumer price inflation, calculated on the basis of the changed base year to 2012, came below expectation. The number would have been higher if it was calculated on the old methodology.

Experts and analysts cheered the new way of calculation by calling it methodologically robust. But the question here is for whom are we making all these calculations? Are the lives of Indians going to get any better by such measures? Or are we simply trying to cook our books to show higher growth and lower inflation? The individual growth indicators which add up to arrive at the final GDP number hardly explain the kind of jump that we have showed in the last two years’ data.

Take for example, the data of production from Indian factories. Amid the surprised, re-based and robust GDP growth, the factory production data for December shows the pace of growth at an abysmally low at 1.7 per cent. This is less than half of what Indian industries produced last month.

The real picture

According to analysts, the factory production numbers give the true picture of the economy. Why are they producing less? Because there is no demand in the country. Because people do not have enough money to spare beyond satisfying their daily needs, implying the inflation is high and economic growth is slow. This is the real picture that the new and enhanced growth numbers hardly capture.

Another key indicator to get a handle on the direction in which the economy is moving is the vehicle sales. They present the real picture of consumer spending behaviour. They are muted for long years in India and do not show any definite upward trend. Next is the tax collection figures. These too are indicators of robustness in the economy.

Here too India is way behind and the government has not been able to reach the budgetary target in past many years. Non-tax revenue too are a sordid tale. The most recent Coal India disinvestment showed that retail buyers have no appetite for such offers. Credit off take from banks do not show any pick-up in the economy either.

The only good thing that the recent projection of economy has done is that it has quickened India’s economic growth in comparison with that of China a bit earlier than the forecasts of Goldman Sachs, the World Bank, the IMF and the likes.

They all had forecast that India’s economy will grow faster than China but not before a year or two. However, it has also compounded the problems for the government when the Budget is just a weeks away. And it has somewhat sent a confusing signal to the RBI whether to tighten or loosen its noose around the economy.

This may create problems for the government because it would have to set its revenue, expenditure and deficit targets according to the newly acquired robustness of the economy unless, of course, it indulges in statistical jugglery. Also, the high growth rate in the economy raises expectations from the Narendra Modi government on the areas of reforms such as cutting down the subsidies, looking for more avenues to raise resources for infrastructure and so on.

There will be problems for the RBI because the robust economic growth numbers send the signal that the rationale for lowering of interest rates is weaker than earlier. At the same time, a lower than expected inflation numbers suggest that the central bank can go ahead for a cut in interest rates.

Not only that, the revision in GDP numbers by the government also forces the RBI to revise its own forecast which was only 5.5 per cent for this year. But that should not be a big problem. The RBI can always revise its earlier forecast at the time of its next policy review.