GDP estimates: Why it's now looking worse than astrology

One would have thought the government’s stats guys would believe their own numbers. But with Pronab Sen, Chairman of the National Statistics Commission, you can’t be sure.

Thus, even while the Central Statistics Office (CSO) said in its advance estimates that GDP growth for 2012-13 would be 5 percent, Sen thinks it should be higher, at 6.5 percent. Or so he told The Economic Times in an interview today.

Last year, the government’s mandarins - from Montek Singh Ahluwalia to C Rangarajan - were ready to shoot the CSO messenger when it talked of 5 percent GDP growth.

[caption id=“attachment_789603” align=“alignright” width=“380”]  If growth was slower last year, this year will show a rebound. Reuters[/caption]

Now, however, they may be ready to throttle Sen. Reason: if growth was slower last year, this year will show a rebound. If it was higher, as Sen says, this year’s growth may actually end up lower than projections on the higher base.

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Right now, the range of GDP growth predictions for 2013-14 go all the way from the Reserve Bank’s pessimistic 5.7 percent to the Budget’s 6.8 percent to Rangarajan’s 6.4 percent and the Economic Survey’s range of 6.1-6.7 percent.

Now, Pronab Sen has thrown a monkey wrench into these projections after a look at the planetary alignments.

In the interview to ET, he said: “The growth last year was probably closer to 6.5 percent than 5 percent. Look around, have you seen any real distress, anyone complaining about jobs, or income drying up? At 5 percent, you would see that happening.”

That’s a bit like the weatherman forecasting clear skies because he can’t see any clouds, but then economics is not an exact science. Few forecasters have ever got it right. Not for nothing did the late economist John Kenneth Galbraith observe: “The only function of economic forecasting is to make astrology look respectable.”

A couple of months down the line, we will know whether the CSO’s astrological acumen is any better than that of the other soothsayers. But Sen had more interesting things to say about the future in the same interview - statements that seemed to contradict his 6.5 percent growth theory of 2012-13.

Among other things, he said whenever companies borrowed less, banks tended to lend more to the small and medium enterprises (SMEs) - which are the main engines of growth in the Indian economy.

But, Sen notes, “last year, even after the withdrawal of the corporate sector, funds were not available to SMEs, because of the decline in the deposit rate. This doesn’t mean that SME’s cannot do well. At best, SMEs get only 25-40 percent of financial requirement from banks rest comes from the informal sector.”

The implications of this statement are this: last year, if SMEs got even less credit than usual, it is difficult to see how growth could have been higher than the CSO’s projections, since SMEs account for a large chunk of GDP and jobs. But since Sen thinks that SMEs get their money more from informal sources, they may not have got impacted.

But Sen also predicts that if big corporate growth picks up now, SMEs will be further squeezed for funds this year - which means growth will slow down in 2013-14.

The UPA will be hoping Sen is wrong. Reason: if last year’s growth was 6.5 percent, this year’s growth will be lower on the higher base. If it was 5 percent, this year’s growth will probably be higher, depending on the monsoons and other factors.

Moreover, if last year the SMEs grew despite a credit crunch, this year a corporate revival will squeeze them on credit - even more than last year. This will trip growth.

P Chidambaram will be hoping that Sen’s astrological acumen is widely off the mark.