Why Economists Are Still Baffled by India’s GDP Growth

[Homo Sapiens]

The Numbers
Why Economists Are Still Baffled by India’s GDP Growth
11:17 pm EST Sep 2, 2015
By
Anant Vijay Kala
share
If economists weren’t already baffled by India’s revised gross domestic product data, they probably are now.

This week the government announced the GDP numbers for the first quarter of the financial year started April.

It said the economy grew at 7% compared to a year earlier. That’s an impressive performance but still suspicious, economists say, as some other indicators unveiled with the GDP on Monday suggest India’s economy could be still stuck in a rut.

Here are four indicator mismatches that have economists scratching their heads.

• GVA vs. GDP
  7.1%
  
  As part of India’s rejiggering of the GDP numbers this year, it introduced a new measurement called gross value added. The GVA measure aims to remove the distorting impact of taxes and subsidies out of economic output and give a better picture of how the real economy is doing.
  
  Economists had expected GVA growth to be lower than 7.0% and well below GDP growth because of a surge in indirect taxes in the most-recent quarter. Instead it was 7.1%, higher than GDP growth and down from the previous quarter.
  
  Some economists say they don’t understand how GVA growth could have accelerated compared to the previous quarter and risen above GDP growth.
  
  The data is “perplexing,” said STCI Primary Dealership, a market-maker in government bonds. HSBC said the latest data “has come with more questions than answers.”
  
  
  
  
• 
  
• GDP Deflator vs. Inflation
  1.7%
  
  To ensure data for different quarters is comparable, statisticians use what is called a deflator to strip out price changes.
  
  Typically, if inflation rates are rising then the deflator rises with them. But the GDP data this week show the deflator rising at a time when other indicators suggested inflation was cooling.
  
  The deflators rose to 1.7% year-over-year in the quarter ended in June, compared with a 0.2% rise in the prior quarter. During the same period India’s consumer price inflation eased to 5.1% from 5.3% and wholesale prices actually deflated at a higher rate.
  
  “These factors add to broader concern that the new growth series are out-of-sync with [frequently announced] indicators,” said Radhika Rao, an economist at DBS Bank.
  
  
• Manufacturing in GDP vs. Industrial Production Data
  7.2% vs. 3.6%
  
  According to the GDP release, manufacturing output climbed 7.2% last quarter. That’s robust by any standard, although it marks a slowdown from the 8.4% expansion it recorded in the previous quarter.
  
  
  
  But, industrial production data between April and June show that the manufacturing sector rose just 3.6%.
  
  Care Ratings puts it bluntly: the GDP numbers show a favorable and improving domestic economy, the situation observed on the ground is different.
  
  
  
  
• Construction vs. Cement
  0.9%
  
  Finally, and perhaps most befuddling of all, the strong rebound in construction activity begs the question, what did they build with and when did they build it?
  
  The GDP numbers showed construction growing 6.9% year-over-year in the quarter ended in June, compared with a 1.4% year-over-year expansion in the prior three months.
  
  Economists were surprised by the construction figures as unseasonal rains had delayed some projects last quarter.
  
  The construction growth was “surprisingly strong, given the above-average rainfall in these months,” said Aditi Nayar, an economist at rating firm ICRA.
  
  Wet weather often leads to delays on construction sites.
  
  Meanwhile some economists pointed to the fact that demand for construction materials didn’t seem to have kept pace with this growth.
  
  According to India’s infrastructure output data, cement production grew only 0.9% last quarter.
  

 

[Stag112]

Could Modi-ji be kind enough to send some nanga-baba to teach those mleccha western economist the benefit of using Vedic math at counting the GDP growth?

I can take more pot shots at your religious beliefs on a purely technical thread that you will have to wipe your tears with that lungi of yours.

But then that would make me a superstitious buffoon who believes his ridiculous beliefs in all kinds of magic and stories are better than others' beliefs. I leave that exalted position to you.

Not to mention all the economists quoted are Hindu Indians and so is the author.

 

[GreenApple]

Could Modi-ji be kind enough to send some nanga-baba to teach those mleccha western economist the benefit of using Vedic math at counting the GDP growth?

..you can take the help of @The_Showstopper and @jamahir to twist every thing that has minutest of anti-modism in it...
...India is secondary to them...ideal condition that suit ur intentions.

 

[Godman]

• Construction vs. Cement
  0.9%
  
  Finally, and perhaps most befuddling of all, the strong rebound in construction activity begs the question, what did they build with and when did they build it?
  
  The GDP numbers showed construction growing 6.9% year-over-year in the quarter ended in June, compared with a 1.4% year-over-year expansion in the prior three months.
  
  Economists were surprised by the construction figures as unseasonal rains had delayed some projects last quarter.
  
  The construction growth was “surprisingly strong, given the above-average rainfall in these months,” said Aditi Nayar, an economist at rating firm ICRA.
  
  Wet weather often leads to delays on construction sites.
  
  Meanwhile some economists pointed to the fact that demand for construction materials didn’t seem to have kept pace with this growth.
  
  According to India’s infrastructure output data, cement production grew only 0.9% last quarter.

Does overseas construction projects by Indian companies count?

 

[homagnibhatt]

Does overseas construction projects by Indian companies count?

No, it doesn't. One contrarian analysis by another economist here.


GDP growth is almost an all-consuming statistic for policymakers, academicians and market participants. However, when the new GDP growth figures were released for the quarter of April-June 2015 (hereafter 2015:2), there was more darkness than light. Not entirely unexpected, since the new GDP data have been met with scepticism. I have not been a sceptic, neither am one today; while the growth figures are confusing, there is a logical, consistent explanation. This time though, don’t blame the CSO for the controversy, blame the IMF.

What happened? GDP growth for the April-June quarter came in at 7 per cent versus market expectations of 7.4 per cent and my own estimate of close to 9 per cent. Many analysts were stunned by the low estimate, especially since the finance ministry and other officials were publicly touting an 8-10 per cent GDP growth path. So, several officials (and commentators) have egg on their face. Or have they?


Except for CPI, all inflation indicators point to zero.
What did the GDP data released by the CSO show? The new data estimates for both gross value added (GVA) and for GDP, and the two are related to each other by this simple identity: GDP = GVA + DITS, where DITS is the difference between indirect taxes and subsidies.

Some simple facts about the three variables: First, DITS is normally positive and accounts for approximately 7 per cent of GDP. Second, GDP and GVA growth rates closely parallel each other. Normally. But for 2015:2, the two diverge, and diverge by a huge amount. In real terms, both grew by a near identical rate of 7 per cent in 2015:2. But in nominal terms, GDP grew at 8.8 per cent while GVA grew by only 7.1 per cent. In other words, inflation as measured by the GVA deflator was zero per cent, while inflation as measured by the GDP deflator was 1.8 per cent.

So the explanation for the difference in growth estimates is all in the computation of the deflator.

But which of the two deflators is likely to represent the correct inflation rate in 2015:2? Before this quarter, they are near identical; between 2011:2 and 2015:1, the aggregate GDP deflator increased by an average of 6.5 per cent a year, the GVA by 6.4 per cent.

One indirect check on what the deflator should be is yielded by the close synthetic proxy for the GDP deflator — a weighted average of WPI and CPI inflation. Historical tests suggest an approximate weighting of two-thirds for the WPI and one-third for the CPI. Between 2014:2 and 2015:2, CPI inflation was 5.1 per cent and WPI inflation minus 2.4 per cent. This yields a 0.1 per cent estimate for the implicit price deflator, strikingly close to the actual GVA deflator of zero per cent!

That deflator inflation is close to zero is also supported by the implicit price deflator for the three supply-side sectors — agriculture (4.5 per cent), industry (minus 1.1 per cent), and services (minus 0.5 per cent). Weighted by shares in GDP, this also yields a deflator close to zero. The chart documents y-o-y quarterly inflation according to four different indicators. The services deflator inflation is introduced to emphasise that inflation decline to close to zero levels is for all sectors. So the real puzzle is the very high GDP deflator inflation of 1.8 per cent — how can this number be so large when all inflation numbers suggest 0 per cent? The answer is the very high implicit price deflator for DITS. Actual nominal growth of DITS is 33.6 per cent, so real growth in DITS is only 6.3 per cent, which yields an implicit deflator of 27.3 per cent.

It’s not the CSO’s fault, blame it on the IMF. The IMF recommends/ mandates that official quarterly estimates of GDP be based on “historical” annual estimates of real DITS. At the end of the fiscal year, all data are available and “true” estimates can obtained. So notice what the CSO has done — it has assumed real DITS growth to be close to the historical norm of 6 per cent (as per IMF recommendations), and allowed the very large residual to be the price change!

The GDP deflator puzzle is solved. GVA deflator accounting for 93 per cent of GDP has a deflator of zero; and 7 per cent (DITS) has a deflator of 27.3 per cent. Aggregate GDP deflator inflation of (0.93×0 + 0.07×27.3) of 1.9 per cent. Eureka, puzzle solved, QED.

So what is the real GDP growth in 2015:2? Two methods: First, the nominal growth in GDP (CSO figures) in 2015:2 was 8.8 per cent; with a correct GDP deflator of zero per cent, this direct estimate of real GDP growth would be 8.8 per cent. Second, with DITS, one obtains (0.07×27.3) or 1.9 per cent as the extra GDP growth missed out by the CSO/ IMF estimate, that is, GDP growth was (7 + 1.9) per cent. So you can take your pick: GDP growth, correctly estimated, in 2015:2 was 8.8 or 8.9 per cent — not the reported 7 per cent.

An additional question in search of an answer: Why has DITS grown at such an enormous rate this year? Mostly oil, and also some reduction in subsidies. Have you noticed that while the imported oil price is less than half of what it was last year, the domestic price of petrol has stayed virtually constant? I exaggerate, it is down by about 10 per cent. The government (both Centre and states) has pocketed almost the entire fall in oil prices in the form of higher taxes.
Oil tax revenue adds to growth and with little extra expenditures, the extra tax revenues translate into a reduction in the fiscal deficit. Even if there are no additional gains, this 2 per cent gain in one quarter translates into an annual reduction in the fiscal deficit of around 0.5 per cent of GDP.

But does growth feel like 9 or 7 per cent? Absolutely the latter, as also indicated by the growth in value-added estimates of agriculture, industry and services. So what’s the meaning of 9 per cent growth? Assume for a moment the government suddenly discovered gold worth 2 per cent of GDP and sold it and used all of its revenues to pare down debt. Then, GDP growth would be 9 per cent but feel like 7 per cent.

This points to an important difference between the BJP and the Sonia Gandhi-led UPA. The UPA received a windfall gain (low oil prices) in 2009 and squandered it, possibly in the interests of winning an election. The BJP has been a lot more responsible and seems to be dedicated to doing the right thing for the economy — bringing down inflation, reducing the fiscal deficit, even if it means sacrificing some short-term growth in GDP and jobs.

When and how will India see a GDP growth close to its potential of 8-10 per cent? I mean real GDP growth of 9 per cent, accompanied by growth in jobs and economy-wide growth — and not by the decline in oil prices. There are no magic wands, but there is a time-tested policy: Make real policy rates competitive with the rest of the world. And 25 bps will just not do it. It’s now over to the RBI.

The writer is contributing editor, ‘The Indian Express’, and senior India analyst, the Observatory Group, a New York-based policy advisory group

GDP growth: Over to the RBI | The Indian Express

 

[Bilal9]

Not to mention all the economists quoted are Hindu Indians and so is the author.

Yeah all sickular economists - right? Not Bhakt economists like those currently in Govt.....

 

[Stag112]

Yeah all sickular economists - right? Not Bhakt economists like those currently in Govt.....

Dude get off your modi obsession. That's all I will say. Debating GDP numbers is a serious topic and why don't you let us learn something about this than this utter stupidity? May be you have missed the thousands of articles debating China's GDP numbers over the decade, so its not all that un-fcking-believable for people to discuss validity of GDP numbers.

 

[Bilal9]

Dude get off your modi obsession. That's all I will say. Debating GDP numbers is a serious topic and why don't you let us learn something about this than this utter stupidity? May be you have missed the thousands of articles debating China's GDP numbers over the decade, so its not all that un-fcking-believable for people to discuss validity of GDP numbers.

Let's not bring China into this - M-kay??

Have you ever been to Beijing, or Shanghai or even 3rd tier cities like Shenzhen??

There is a Chinese section in this forum - go take a look please. Comparing Bharat with China is a foolhardy exercise. It'll take you at least a couple more decades to match China in infrastructure, much less GDP. I know the RSS-ers keep thumping their collective chests - but if chest thumping equated to development then I have little to say....

Keep comparing yourselves with us (like so many WB bongs do) so you'll keep feeling better and keep hiding your head in the sand.

I've been to both China and India recently and there is no comparison. You Bhartiyas have neither the discipline, nor the work ethic, nor the vision as a large nation to pull off what China has done in the last two decades.

 

[Stag112]

Let's not bring China into this - M-kay??

Have you ever been to Beijing, or Shanghai or even 3rd tier cities like Shenzhen??

There is a Chinese section in this forum - go take a look please. Comparing Bharat with China is a foolhardy exercise. It'll take you at least a couple more decades to match China in infrastructure, much less GDP. I know the RSS-ers keep thumping their collective chests - but if chest thumping equated to development then I have little to say....

Keep comparing yourselves with us (like so many WB bongs do) so you'll keep feeling better and keep hiding your head in the sand.

I've been to both China and India recently and there is no comparison. You Bhartiyas have neither the discipline, nor the work ethic, nor the vision as a large nation to pull off what China has done in the last two decades.

I've been to China more than you have, but that was no cue to bring out your red pompoms. All I was saying was that it is possible to discuss GDP numbers without going full retard about Hinduism or Modi as it is normal for people to discuss what are considered analytical gaps in GDP data and indicators.

Now before you go on another tangent, lets get back to topic, the topic is NOT Hindus or Modi. Thanks.

 

[Bilal9]

Could Modi-ji be kind enough to send some nanga-baba to teach those mleccha western economist the benefit of using Vedic math at counting the GDP growth?

Misa kotha - hoggol-e misa kotha

 

[45'22']

@Slav Defence sirjee...this threads needs cleaning....people r using religion to score brownies and troll

 

[RisingShiningSuperpower]

The Numbers
Why Economists Are Still Baffled by India’s GDP Growth
11:17 pm EST Sep 2, 2015
By
Anant Vijay Kala
share
If economists weren’t already baffled by India’s revised gross domestic product data, they probably are now.

This week the government announced the GDP numbers for the first quarter of the financial year started April.

It said the economy grew at 7% compared to a year earlier. That’s an impressive performance but still suspicious, economists say, as some other indicators unveiled with the GDP on Monday suggest India’s economy could be still stuck in a rut.

Here are four indicator mismatches that have economists scratching their heads.

• GVA vs. GDP
  7.1%
  
  As part of India’s rejiggering of the GDP numbers this year, it introduced a new measurement called gross value added. The GVA measure aims to remove the distorting impact of taxes and subsidies out of economic output and give a better picture of how the real economy is doing.
  
  Economists had expected GVA growth to be lower than 7.0% and well below GDP growth because of a surge in indirect taxes in the most-recent quarter. Instead it was 7.1%, higher than GDP growth and down from the previous quarter.
  
  Some economists say they don’t understand how GVA growth could have accelerated compared to the previous quarter and risen above GDP growth.
  
  The data is “perplexing,” said STCI Primary Dealership, a market-maker in government bonds. HSBC said the latest data “has come with more questions than answers.”
  
  
  
  
• 
  
• GDP Deflator vs. Inflation
  1.7%
  
  To ensure data for different quarters is comparable, statisticians use what is called a deflator to strip out price changes.
  
  Typically, if inflation rates are rising then the deflator rises with them. But the GDP data this week show the deflator rising at a time when other indicators suggested inflation was cooling.
  
  The deflators rose to 1.7% year-over-year in the quarter ended in June, compared with a 0.2% rise in the prior quarter. During the same period India’s consumer price inflation eased to 5.1% from 5.3% and wholesale prices actually deflated at a higher rate.
  
  “These factors add to broader concern that the new growth series are out-of-sync with [frequently announced] indicators,” said Radhika Rao, an economist at DBS Bank.
  
  
• Manufacturing in GDP vs. Industrial Production Data
  7.2% vs. 3.6%
  
  According to the GDP release, manufacturing output climbed 7.2% last quarter. That’s robust by any standard, although it marks a slowdown from the 8.4% expansion it recorded in the previous quarter.
  
  
  
  But, industrial production data between April and June show that the manufacturing sector rose just 3.6%.
  
  Care Ratings puts it bluntly: the GDP numbers show a favorable and improving domestic economy, the situation observed on the ground is different.
  
  
  
  
• Construction vs. Cement
  0.9%
  
  Finally, and perhaps most befuddling of all, the strong rebound in construction activity begs the question, what did they build with and when did they build it?
  
  The GDP numbers showed construction growing 6.9% year-over-year in the quarter ended in June, compared with a 1.4% year-over-year expansion in the prior three months.
  
  Economists were surprised by the construction figures as unseasonal rains had delayed some projects last quarter.
  
  The construction growth was “surprisingly strong, given the above-average rainfall in these months,” said Aditi Nayar, an economist at rating firm ICRA.
  
  Wet weather often leads to delays on construction sites.
  
  Meanwhile some economists pointed to the fact that demand for construction materials didn’t seem to have kept pace with this growth.
  
  According to India’s infrastructure output data, cement production grew only 0.9% last quarter.

These Western economists are confused because they don't understand Vedic Mathematics and Vedic Statistics.

 

[Chinese-Dragon]

LOL, Indian members are always questioning our GDP figures.

Now the whole world is questioning India's GDP figures.

IMF to examine India’s ‘puzzling’ growth data | The Financial Express

Modi's "special revisions" did not actually change any of the underlying economic indicators, which are performing poorly as usual. It just marked up the overall growth rate significantly.

Overnight, his revisions changed India's growth rate from 4% to around 7%. But none of the actual economic indicators changed at all, they are still the same as they were when India's growth was 4%.

 

[Bilal9]

LOL, Indian members are always questioning our GDP figures.

Now the whole world is questioning India's GDP figures.

IMF to examine India’s ‘puzzling’ growth data | The Financial Express

Modi's "special revisions" did not actually change any of the underlying economic indicators, which are performing poorly as usual. It just marked up the overall growth rate significantly.

Overnight, his revisions changed India's growth rate from 4% to around 7%. But none of the actual economic indicators changed at all, they are still the same as they were when India's growth was 4%.

 

[The_Showstopper]

..you can take the help of @The_Showstopper and @jamahir to twist every thing that has minutest of anti-modism in it...
...India is secondary to them...ideal condition that suit ur intentions.

Ouch... I might have pricked you somewhere

Oh yeah anything critical about Modi is against India... Right