What the 'puzzling data' tell us about the state of Indian economy
I was reading The Indian Express, which recently highlighted the puzzling Indian economy picture over the last four years. The article highlights some of the questions which many economists have been raising over a period of time. It is vital that these questions are raised and answers be forthcoming.
One of the main factors is the change in method of GDP computation from GDP at constant factor cost to GVA, that is, Gross Value Added. Let me hasten to add that most economies today compute growth on GVA basis. This change was made from December 2015 and the base year was shifted from 2005 to 2011-12. As per the new methodology, the GDP growth went up from 5.2 per cent in 2013-14 to 6.9 per cent as per GVA. The growth for 2012-13 went up from 4.5 per cent to 5.1 per cent. These were the last two dismal years of UPA government.
We have been subsequently measuring the growth figures by GVA method from 2015 onwards. GVA basically measures growth by value added method that is basically value added during the production of all goods and services in the economy. It is basically from the producer’s point of view or the supply side of the economy The GDP at factor cost basically measures growth from the consumer’s side or the demand side.
When we wish to make a comparative study of the economic growth over a period of time it is necessary to find GVA growth figures for period earlier than 2012-13. This has not been forthcoming from the statistics department despite a number of promises It is vital that this is done at the earliest so that a proper comparison be made.
The biggest puzzle has been the lack of growth of merchandise exports over the last four years. The export figures have remained stagnant or fallen marginally as compared to 2013-14. This remains a matter of worry because the world economy has not only recovered, but is growing at a healthy clip. A deeper analysis is required and a push for exports is called for.
Credit growth for industries has remained tepid and gross fixed capital formation has remained below the levels of 2013-14. This underlines the weakness in the economy. The economy seems to be running heavily on public investment while private investment, exports and consumer demand remain muted. The rising prices of oil may soon force government to reduce taxes on petrol and diesel and push down government expenditure on infrastructure. This may reduce public investment and lower growth figures. It is imperative that the other three wheels of private investment, exports and consumer demand start chugging faster.
On the plus side, the economy has started picking up. The growth figure for Q4 of 2017-18 holds promise and, at 7.7 per cent, is encouraging. The economy has a whole has grown at 6.7 per cent in 2017-2018. This is not a satisfying figure considering the low oil prices and the upturn in world economy. But the worst seems to be behind us.
Another satisfying feature has been the gradual stabilisation of GST after the initial hiccups. The GST collection seems to be settling around Rs 90,000 crore per month. It signals a gradual shift of informal economy to formal economy which is good from the long term point of view. The direct tax collection figures are also satisfying and there is a gradual increase in tax returns.
There are conflicting signals from the ground. On one hand there is healthy growth in automobile industry and consumer durable segment, on the other hand, there seems to be acute distress in the countryside. The farming sector is restless and on the warpath. No clear picture on job creation is still available. The inflation picture is so far under control, but rising oil prices and looming elections could alter the figure. The RBI has already factored in rising inflation.
The country is preparing for general elections next year. The economy as always will be the crucial factor. The puzzling data is before us but what will matter ultimately is what the common man makes of the economy. The data holds no brief for him but he will judge on his own gut instinct.
What will matter to him is how he is placed as compared to 2014. The government and the Opposition waits with bated breath for his judgement. He is the final authority.