Came across this piece backing India's new GDP series. Read it with growing sense of incredulity. Sure people have right (I am not talking of political leaning here) to opinion. This article possibly raises more questions than it answers.
Initially I thought this opinion is a reflection of the new wave of nationalistic fervour gripping this country. Raising bogies like ‘India cannot grow faster than China’ or for that matter ‘CSO is prejudiced’ seems to be a way of raising nationalistic feeling to fever pitch. Frankly, I have not heard/ read of such thoughts making the round. Even if its there, such thoughts still constitute minority and definitely does not deserve mention. Yet, these are used as the basis of the article.
The common refrain is that under no circumstance does the economy feel like growing at 7% plus. And, I am also one of those doubting Thomases. Few questions need to be asked:
- Why on earth would the government desperately want to stimulate an economy growing at 7% plus?
- We all understand that the new GDP series essentially measures value addition. Where the question lies in is in the method of estimation. Agreed the data covers a much larger set of companies than was the case earlier. Ministry of Corporate Affairs (MCA) balance sheet database of 500,000 companies is commendable but what is the proof that the quarterly data itself is correct? The latest GDP data was released within 5 weeks after the quarter ended, a period within which only a handful of companies can released their unaudited quarterly data. A bigger question is, when capacity utilization is hovering near its all time low, demand is weak, corporates are struggling to maintain their margin, why on earth would wage growth remain so strong (he is talking of 8.5% wage growth in FY16). Its clearly just a survey data which seems to be quite divorced from reality. The companies are here to do business not charity. When companies are struggling to grow their topline and bottomline, why would wages grow at such a fast pace? Also, using profit growth of only 120 manufacturing companies (in BSE 500) as the actual profit growth at macro level seems quite brave assumption. Mind you the medium, small and micro enterprises (MSMSEs) have a much larger share of employment in this country than does the large companies. And, these are mostly struggling and yet we assume such heady wage growth number. Why?
- Not just the IIP (index of industrial production) data, even the core sector data remains weak. Road and rail freight performance shows no sign of improvement. Essentially when economic activity remains so weak, how can value-added continue to surge through higher wages?
- There’s no reference whatsoever to the service sector deflator issue. Fact remains that CSO (central statistical organisation)does not have relevant data for prices of service. Most of the service is in the non-tradable sector and it’s absolutely wrong to use wholesale price index (WPI) to deflate the service sector to arrive at real service sector GDP from nominal service sector GDP. Nobody in India, who pays for some sort of service or the other, would believe that service prices have gone down. Add to that the continual increase in service tax rate (which further pushes up the price of services) and it seems ridiculous that nominal service sector would be deflated by WPI (which has been in a negative territory for such a long period of time). And, for a sector that account for nearly 60% of the GDP, deflating it by a negative number definitely boosts up real GDP growth rate beyond what it should have.