 "GDP to be real tracker of current economic situation: Debopam Chaudhuri")
ZyFin, a financial information and content company, on Thursday came out with a new parameter of estimating gross domestic product (GDP) growth. Unlike official method, the new estimates will come out every month and calculate inflation from GDP deflator. Debopam Chaudhuri, vice-president-research, ZyFin, tells Somesh Jha more about the new concept. Edited excerpts:
What are the parameters of your model of estimating GDP?
We are not constructing the GDP or computing it in rupees crore per se as the official numbers are done. We will calculate growth rate in GDP and make the data available 10 days prior to the actual release of the government data. We are basically keeping GDP as a benchmark and have created a model which makes use of factors such as overall global economic growth, capital market in India, agriculture in India, foreign trade, etc. We have taken all these parameters and this model forecasts GDP growth before the actual numbers come out. Hence, in a way it is a prediction of the actual GDP growth rate.
One cannot use the government's data to do a sequential quarter-to-quarter comparison. If you do that, seasonal adjustments have to be made. For instance, if one computes GDP for a month, say November, the government data can compare the GDP number of November with previous year’s November but not October of the same year. Here lies the difference as we have come out with sequential growth rates where November can be compared with October of the same year. One big difference between our and the official data is that sequential comparison can be done.
So basically, will you come out with data on a monthly basis?
This is where the second difference comes. We will come out with monthly data against the quarterly data that government comes out with. It took us a year-and-a-half to construct it. As a result, we have a comparison which can tell us how this month looks like against the previous month and also with same month in previous year.
How effective will your data be in assisting the policy makers more than the official computation?
This (our data) would be more updated as these are on monthly sequential basis. This would be real tracker of the current economic situation.
The policy makers do not have to wait for three months to understand where the economy was in that particular period. Secondly, you can compare this to the previous month and previous quarter. The official data gives very little inputs to the policy makers in knowing how economy has grown in a short span of time.
So, how did you come up with the 4.3 per cent GDP growth number for the first quarter of 2013-14? Was it computed in the way official data is calculated or was it based on your parameters?
Since we are doing it for the first time, 4.3 per cent is exactly how the government does. However, along with that, we have also calculated month-on-month estimates which will be made available in due course of time.
You will track inflation on the basis of the GDP deflator. So which inflation is being talked about here -- the consumer price index (CPI)-based or the wholesale price index (WPI)-based?
Deflator means prices of all goods and services that are produced in an economy in that year or particular quarter. This is a more comprehensive measure than both CPI and WPI. They both are based on basket of goods and services which were once created keeping in mind these are more relevant goods and services that people will consume and then numbers are calculated on basis of that particular basket.
However, that is not the case with the deflator as in this, the basket changes every year according to the goods and services that are being produced in the economy in the particular year, month or quarter. Hence, this would be much more comprehensive, recent and dynamic in order to capture inflation. However, it relates more to WPI because this is price of goods and services produced.
What are the parameters of your model of estimating GDP?
We are not constructing the GDP or computing it in rupees crore per se as the official numbers are done. We will calculate growth rate in GDP and make the data available 10 days prior to the actual release of the government data. We are basically keeping GDP as a benchmark and have created a model which makes use of factors such as overall global economic growth, capital market in India, agriculture in India, foreign trade, etc. We have taken all these parameters and this model forecasts GDP growth before the actual numbers come out. Hence, in a way it is a prediction of the actual GDP growth rate.
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How different is your methodology of computing GDP data from the official estimates? The report mentions that your data is seasonally adjusted, but the official numbers, too, are seasonally-adjusted...
One cannot use the government's data to do a sequential quarter-to-quarter comparison. If you do that, seasonal adjustments have to be made. For instance, if one computes GDP for a month, say November, the government data can compare the GDP number of November with previous year’s November but not October of the same year. Here lies the difference as we have come out with sequential growth rates where November can be compared with October of the same year. One big difference between our and the official data is that sequential comparison can be done.
So basically, will you come out with data on a monthly basis?
This is where the second difference comes. We will come out with monthly data against the quarterly data that government comes out with. It took us a year-and-a-half to construct it. As a result, we have a comparison which can tell us how this month looks like against the previous month and also with same month in previous year.
How effective will your data be in assisting the policy makers more than the official computation?
This (our data) would be more updated as these are on monthly sequential basis. This would be real tracker of the current economic situation.
The policy makers do not have to wait for three months to understand where the economy was in that particular period. Secondly, you can compare this to the previous month and previous quarter. The official data gives very little inputs to the policy makers in knowing how economy has grown in a short span of time.
So, how did you come up with the 4.3 per cent GDP growth number for the first quarter of 2013-14? Was it computed in the way official data is calculated or was it based on your parameters?
Since we are doing it for the first time, 4.3 per cent is exactly how the government does. However, along with that, we have also calculated month-on-month estimates which will be made available in due course of time.
You will track inflation on the basis of the GDP deflator. So which inflation is being talked about here -- the consumer price index (CPI)-based or the wholesale price index (WPI)-based?
Deflator means prices of all goods and services that are produced in an economy in that year or particular quarter. This is a more comprehensive measure than both CPI and WPI. They both are based on basket of goods and services which were once created keeping in mind these are more relevant goods and services that people will consume and then numbers are calculated on basis of that particular basket.
However, that is not the case with the deflator as in this, the basket changes every year according to the goods and services that are being produced in the economy in the particular year, month or quarter. Hence, this would be much more comprehensive, recent and dynamic in order to capture inflation. However, it relates more to WPI because this is price of goods and services produced.