Cracking the GDP puzzle: How data revisions helped the govt show a better number
Doubts surrounding India's GDP number just refuse to die down. With every new GDP number there is a chain of suspicions and denials
Doubts surrounding India's GDP number just refuse to die down. With every new GDP number there is a new controversy. It even seem like the number of analysts and economists who question the veracity of the number is also rising.
With the latest October-December figure the confusion confounded due to the revisions the government made to the earlier released numbers. Almost all the data released since April-June 2015-16 got revised with latest print.
The only number that was not revised was January-March 2017 GVA figure which has been retained at 7.4%. To be sure, one can't find fault with the government for revising the earlier numbers.
As chief statistician TCA Anant said in the interview to the Indian Express today as the government gets hold of more data, the numbers will be improved up on.
“For example, on capital formation, I will get more complete information when complete accounts are available. At the moment, we are assessing it from a limited set of indicators which are there... So, certainly as more data becomes available, assessments will improve and that is why we have a system of revision. But I can only improve for which data is available,” Anant has told the news paper.
Capital formation is a measure of capital investment in the economy. As per the estimates, the gross fixed capital formation during the October-December stood at Rs 879,763 crore, which is an on year growth of 3.5 percent.
However, a section of analysts feel it is the revision that helped the government show a better figure this time.
"The higher than expected GVA print of 6.6% YoY is attributable to lowering of base. On an unchanged base it would be at 6.2% YoY, closer to our expectation of 6.3%," said Dhananjay Sinha and Kruti Shah in a note.
They have also noted that although the impact of demonetisation looks muted on overall numbers due to changed base, it is more visible in the financial sector which slumped to 3.1 percent on year.
According to them, the government's revenue expenditure has been the primary growth driver, which they expect to continue in the fourth quarter too.
"Multiplier impact on higher private consumption from government spending has been delayed due to demonetization. Importantly, capital formation as suggested by Q3 and Q4 data show a positive growth which contradicts the decline in government capital outlay and continued delayed in private capex," they have said.
SBI Chief Economic Adviser Soumya Kanti Ghosh too had the same view. "The steep downward revision of Q3 FY16 has in turn led to higher growth in Q3 FY17, thus masking the impact of demonetisation in the Q3 figures. Some of the numbers beneath the surface however signify the impact of demonetisation," he has bee quoted as saying in a PTI report.
"Despite the upward revision of Q1 FY16 and Q2 FY16, GDP estimates for Q1 FY17 and Q2 FY17 have been revised upwards indicating improvement in economic activity in first half of current fiscal," he wrote in a report.
Nomura too raised suspicion about the data saying they do not add up. "High frequency real activity data released since demonetisation suggest that consumption and services were hit after demonetisation because they are more cash-intensive," Nomura said.
It has given three reasons for this discrepancy. "First, the inability of official statistics to capture the negative growth effects on the unorganised sectors; second, positive base effects created by the 0.8 pp upward revision in fourth quarter 2015 GDP growth; and third, companies may have showed their cash in hand as sales."
The brokerage feels the official GDP numbers "are significantly underestimating the growth impact of demonetisation".
Data by Kishor Kadam
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