Seven wonder

Seven wonder
The Financial Express, February 10, 2009, Page 6

CSO brings some cheear

Central Statistical Organisation’s (CSO) efforts and official data delivery systems are improving on reducing the time lag, though quality can only be judged later. There have always been discrepancies between CSO’s advance, quick, provisional and final estimates, but invariably at decimal point. The overall story doesn’t change and, ahead of schedule, CSO has now provided advance real GDP growth estimates of 7.1% in 2008-09, compared with 9.0% in 2007-08. Breakdown in four quarters isn’t available yet. However, the background is growth of around 7.5% in the first half of 2008-09, implying growth of around 6.5% in the second half. The global shock didn’t show in the first half. And with zero (indeed, negative) growth in exports, bad news on IIP (index of industrial production) and repeated stories of job losses, growth of 5% or below—not 6.5%—was expected in the second half of 2008-09. Nominal GDP is converted to real GDP using GDP deflators. Unless something is non-transparent on these deflators, any dire prognosis is wrong and India is far better placed than believed. Thanks to monetary tightening, growth had dropped from 9% to 7.5% and CSO figures suggest only 0.5% has been shaved off because of the global impact. This compares with the 1.5 to 2% shaving off earlier expected by the Planning Commission.

Real per capita income growth of 5.6% in 2008-09 may not be as high as 7.6% last year, but is significant. What has driven 7.1% growth? It isn’t agriculture, forestry and fishing, which has slowed to 2.6% from 4.9% last year. Nor is it industry, narrowly defined. Construction has had a role. However, 7.1% has been largely driven by the 10.3% growth in trade, hotels, transport and communications (primarily railway freight and telephone connections) and the 8.6% growth in finance, real estate and business services. Incidentally, again contrary to expectations, the investment story isn’t that bad either. In current prices, gross domestic capital formation increased to 34.6% from last year’s 34% (constant price figures are a little lower). If these figures are right and aren’t dramatically revised downwards later, the impact of global recession on India hasn’t been much; remember, in this context it is too early for either fiscal or monetary stimuli to have registered any positive effects. A case can be made out for time lags, to the effect that the shock will show up in 2009-10. However, that’s not convincing. Instead, given these CSO numbers, growth projections for 2009-10 should also now be revised upwards, from 5% to 7%. CSO has probably achieved more in reversing sentiments than the government’s monetary and fiscal policy combined.