GDP at 6-quarter low of 6.6%: Growth numbers may not be telling us whole story yet; reality is often masked in statistics

Post the disappointing October-December GDP figures, achieving even 7% full year growth seems to be a tough task for Indian economy

Dinesh Unnikrishnan March 01, 2019 09:14:34 IST
GDP at 6-quarter low of 6.6%: Growth numbers may not be telling us whole story yet; reality is often masked in statistics
  • Achieving a 7% full year growth looks a tough task for Indian economy

  • To achieve 7% target, the economy needs to grow at 6.5% in the January-March quarter

  • This looks a tad difficult looking at a range of ground-level primary indicators as investment activity indicators

Post the disappointing October-December GDP figures, achieving even a 7 percent full year growth looks a tough task for Indian economy. If the 7 percent target needs to be achieved, the economy needs to grow at 6.5 percent in the January-March quarter. If one goes by the growth trend, this looks a tad difficult also looking at a range of ground-level primary indicators as investment activity indicators.

Among the multiple ones, a good indicator to look at the ground level economic activity is two-wheeler sales. This has been slowing for the past many months.This is despite various heavy discount offers to lure buyers. Low demand and inventory pile up has been hurting companies. This also is pointing towards sluggish economic activity on the ground. Besides this, there are other indicators too such as flow of bank credit to industries, service and manufacturing sector performance, level of stressed assets and employment figures telling us that something is going wrong in the economy for a while.

GDP at 6quarter low of 66 Growth numbers may not be telling us whole story yet reality is often masked in statistics

Representational image. Reuters.

First, let’s look at what the latest numbers show. At 6.6 percent in Q3, the economy is at the slowest growth in at least six quarters. In Q1 of FY18, the growth had touched 6 percent but since then this quarter is the lowest. What has played spoilsport this time? Look at agriculture; the growth in this segment has fallen to 2.7 percent in Q3 from 4.2 percent in the previous quarter and 5 percent in Q1. This has been the story with manufacturing too—6.7 percent in Q3 as compared with 6.9 percent in Q2 and a smart 12.4 percent in Q1.

Trade, hotels and transport, electricity and mining failed to give any major support dragging down the overall performance. Consumption expenditure figures are not impressive too with both government and private figures slowing in the third quarter. That’s about the Q3 numbers on paper.

As mentioned above, these numbers aren’t everything, particularly when GDP calculation and methodology is fighting a major trust deficit even among economists. For a while now, GDP is a hot political issue too with the government and Opposition parties using these figures to further their arguments.

The disconnect between headline GDP numbers and a range of macroeconomic indicators that should ideally correlate with these numbers has puzzled many (see the table).

GDP at 6quarter low of 66 Growth numbers may not be telling us whole story yet reality is often masked in statistics

For instance, the first quarter of this year marked an 8 percent GDP growth. In fact, for the first nine months period of this fiscal year, GDP growth sands at 7.2 percent as against 6.8 percent in same period of FY2018. Even when Q1 figure touched the 8 percent mark, triggering speculations of a revival, nothing much had changed on the ground. Problems stay as they are, if not they have worsened further. It is no rocket science to conclude that things wouldn’t have gotten any better now, at 6.6 percent than when they were at 8 percent.

Right now, there is a serious unemployment issue India is grappling with. A recent Business Standard article quoting NSSO data showed that during the period 2011-12 and 2017-18, unemployment among the educated spiked in both rural and urban areas, with the ratio of unemployment more than doubling to 10.5 percent and 9.2 percent for males in rural and urban areas respectively and at 17.3 percent and 19.8 percent for females respectively in rural and urban areas. If we have consistent high growth, the question one needs to ask is, why do we have high unemployment?

Now look at the banking sector. A major resolution process is underway. But no sane analyst would say that the problem of bad loans is over. In fact, even now banks are yet to tag Rs 5 lakh crore worth stressed corporate loans as NPAs.

"Around 3.9 percent of the stressed corporate exposure of 19.3 percent total stressed corporate accounts are still unrecognised and are standard in banks' books, while around Rs 1.5-2 lakh crore of them may slip into NPAs by H2 of FY20," Jindal Haria, associate director for banking and financial institutions at India Ratings told reporters in early February. Again, what does high level of stressed loans tell us about the economy?

The GDP figures often show a different picture than what one sees on the ground. Just like IIP data, which too have faced the problem of reliability in telling us about the real economic situation, the GDP numbers too are fighting a trust deficit.

The point is this: Given that there is something seriously wrong with the way we calculate GDP numbers, may be it’s time one stopped looking at GDP numbers to understand actual economic situation and, instead, look at a group of primary indicators. Reality is often masked in the magic of statistics.

(With data inputs from Kishor Kadam)

Updated Date:

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