Is India’s GDP really growing at 7.5% or papers only?

Mumbai,Praveena Sharma : It’s been almost a year since the revised method of measuring gross domestic product (GDP) was put in place but it still hasn’t seem to have instilled confidence in some economists and rating agencies.

D K Srivasatava, chief economic advisor, EY India, is emphatic when he proclaims that the economic ground realities are at variance with the national income growth being projected in the new series by the government for the current fiscal.

“The methodology revision (for computing GDP) they have done and the ground reality we observe, in terms of other indicators of growth, do not match. For example, if growth is picking up then demand should be picking up, and if demand is picking up then credit offtake should be picking up. And when credit growth picks up then PMI indices should show that optimism. None of that is happening,” he quipped.

The government, in its mid-year economic review, has trimmed its guidance for the GDP growth in FY16 to 7-7.5% from the earlier 8-8.5%.
Srivastava, though, feels a GDP growth rate of 5.5% would be more “realistic” projection under the prevailing macro-economic situation.
“We are not consistent with 7.5% growth rate. The ground reality does not reflect that, it should be lower. If we went by earlier measurement, we would be clocking in 5.5%. That would be more realistic,” he said.

In a recent interview with dna, Lord Meghnad Desai, eminent economist and UK’s Labour Party politician, had expressed a similar concern.
“Without doubting the credentials or the motivation of the people involved, there is a lot of dissatisfaction over the changed growth rate. Despite my serious efforts, I have not got a satisfactory answer to the revised rate,” the author of Marx’s Revenge had told dna.

He also raised his eyebrows over the one-and-a-half percentage points bump-up in the growth number due to the alteration in the computing method. However, he did not see growth rate under the new series as “window dressing or political”.
“But I don’t think that is possible (that is it window dressing or political). The important point is that India’s economy is not in doldrums, it is growing,” he said.

In the same interview, Baron Desai said India had “the capacity to grow at 9%”.
On the other hand, Srivastava said the 7.5% economic growth projected by the government was being doubted by most, including rating agencies like the World Bank and others.
“Everybody is doubting that (7.5% growth in the current fiscal), including the rating agencies. People talk in two ways. If it is the old number then they take 5.5% and if new number then it is 7.5%, even the rating agencies.

They (rating agencies) are even more conscious of it (disconnect of the new series with most macro realities,” he said.
Another eminent economist, who did not want to be named, said he saw the new series as an improvement over the old one as it measured manufacturing on a much larger sample size.

The real issue, according to him, was it did not capture the full business cycle – boom and slowdown – as it was not benchmarked over that period.
“I don’t think the methodology is an issue. Unless it is benchmarked to a business cycle, I don’t we can make any judgement whether it is capturing the reality or not. It is actually a premature assessment,” he said.

Amit Sarkar, partner and leader – indirect taxes – Grant Thornton India, said in terms of expectation and potential, the growth outlook has been pushed downward with economic indicators and policies playing out differently.
Srivastava believes the government had to eat humble pie on growth forecast because it was looking at wrong numbers for both growth and inflation.
“The government’s own numbers are not reliable but that is what it keeps looking at. It thinks we are growing at 7.5% but we are not. And, if policies are made on those numbers, obviously they will not work because they are in a different context (than the realities),” he said.

According to him, the government is now caught in a vicious cycle of misinterpretation of the real macro scenario.
“I don’t see them (government) getting out of it because they’ve brought it upon themselves. It wanted to show a rosy picture of growth and inflation. (Now) the picture is rosy but reality is not that rosy,” he said.