 "For the fiscal deficit target, we'll need further expenditure cuts: Pronab Sen")
The latest data show gross domestic product will rise 7.4 per cent in 2014-15. However, National Statistical Commission Chairman Pronab Sen says this is due to efficiency gains, which will stabilise. Edited excerpts of a talk with Ishan Bakshi:
Does the latest GDP growth of 7.4 per cent mean we will be soon back to the eight per cent trajectory?
Not quite. These efficiency gains cannot last forever. Our normal thinking is that productivity levels grow very slowly and the bulk of the growth comes from physical output. This data shows the opposite is happening, that physical output is slowing but the bulk of it is coming from efficiency gains. This cannot last. Sooner or later, we will go back to the stable efficiency growth and you'll depend mainly on growth of physical output
With these latest figures, what happens to the government's commitment to meeting the fiscal deficit target of 4.1 per cent of GDP in FY15?
Nominal GDP growth was only 11.5 per cent, two percentage points lower than the Budget estimate. So, the denominator is going to be lower than assumed in the Budget. Thus, further expenditure cuts to bring down the fiscal deficit are required.
The latest GDP numbers show a sharp slowing in mining, manufacturing and construction in the third quarter. What are the particular reasons?
As far as Q3 (the financial year's third quarter) is concerned, for construction it could be a base effect because normally what happens is that after the monsoons, its activity picks up very rapidly. This year, the monsoons were bad. So, I don't think there was any dip in construction during that season as normally happens, which would explain the higher construction in Q2. So, last year's base effect has now kicked in.
In mining, there is again a monsoon effect. Mining and construction are the two sectors that stop production during Q2 and Q3. They pick up very strongly to make up for the backlog. So, there is a monsoon base effect. But on manufacturing, that should not be the case.
The latest figures show public administration, defence and other services grew sharply in Q3.
The data on government expenditure comes from the controller general of accounts. One would have expected Q1 and maybe Q2 to pick up because of shoving of the expenditure of last year. Why it is showing up in the third quarter, I don't know. I would have expected Q1 to be higher. If you remove public expenditure, the third quarter growth plummets.
Does the latest GDP growth of 7.4 per cent mean we will be soon back to the eight per cent trajectory?
Not quite. These efficiency gains cannot last forever. Our normal thinking is that productivity levels grow very slowly and the bulk of the growth comes from physical output. This data shows the opposite is happening, that physical output is slowing but the bulk of it is coming from efficiency gains. This cannot last. Sooner or later, we will go back to the stable efficiency growth and you'll depend mainly on growth of physical output
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Nominal GDP growth was only 11.5 per cent, two percentage points lower than the Budget estimate. So, the denominator is going to be lower than assumed in the Budget. Thus, further expenditure cuts to bring down the fiscal deficit are required.
The latest GDP numbers show a sharp slowing in mining, manufacturing and construction in the third quarter. What are the particular reasons?
As far as Q3 (the financial year's third quarter) is concerned, for construction it could be a base effect because normally what happens is that after the monsoons, its activity picks up very rapidly. This year, the monsoons were bad. So, I don't think there was any dip in construction during that season as normally happens, which would explain the higher construction in Q2. So, last year's base effect has now kicked in.
In mining, there is again a monsoon effect. Mining and construction are the two sectors that stop production during Q2 and Q3. They pick up very strongly to make up for the backlog. So, there is a monsoon base effect. But on manufacturing, that should not be the case.
The latest figures show public administration, defence and other services grew sharply in Q3.
The data on government expenditure comes from the controller general of accounts. One would have expected Q1 and maybe Q2 to pick up because of shoving of the expenditure of last year. Why it is showing up in the third quarter, I don't know. I would have expected Q1 to be higher. If you remove public expenditure, the third quarter growth plummets.