 "Growth rates in FY05-FY11 will be lower under the new GDP series: T C A Anant")
With the controversy surrounding the new gross domestic product (GDP) series refusing to die down, Chief Statistician of India and Secretary-Ministry of Statistics and Programme Implementation T C A Anant spoke to Business Standard to dispel the growing doubts. In an interview to Ishan Bakshi, Anant says GDP growth in 2004-05 to 2010-11 will be lower under the new GDP series once the Central Statistics Organisation (CSO) comes out with a back-series. Edited excerpts:
How do you respond to those who say that this does not feel like a seven per cent growth?
What does one mean when you say this does not feel like? Supposing we were to re-compute the past series based on updated data and then say we got the growth rates between 2004 and 2011 wrong. Would that feel right? The problem is that everyone's perception is driven by what is available. For example, we have no contemporaneous data on jobs. So we feel based on what we have seen. When the jobs data come out, do we revise our feeling about what we felt then? The problem is not with data. The problem is the benchmark against which you analyse.
We have finished the parts of the back-series work that are relatively straightforward. The main issue we are still verifying is the corporate sector estimates. We did not have the same data source in the past. So we are using some rules to revisit calculations made on information we had then. We will then compare these to what we know now through the Ministry of Corporate Affairs (MCA) database.
How different will the past GDP growth rates be under the new series as compared to earlier series?
I'm not going to speculate on what growth rates come out. But it is easy to say that growth rates on an average are going to be very different for a simple reason. In the old series, we had calculated GVA for 2011-12 at a certain amount. Under the new series, GVA in 2011-12 is lower. Now, between 2004-05 and 2011-12, on an average, we are going to get a lower amount. But how does one distribute that difference over the period? Is it uniform? That has to be done with an understanding of the individual components of growth.
Does that mean past growth rates will be lowered?
Not every year. It will not be a linear trend, because the previous years' numbers did not follow a linear trend. Some rule of thumb will have to be worked out. When you say that the average will be lower, it might be higher in some years and lower in some.
What is your response to the issues raised by R Nagaraj, professor at Indira Gandhi Institute of Development Research, over the new GDP series?
We have already answered the original set of concerns related to the manner in which estimates from the MCA database were used to project for the entire corporate sector. The basic argument is that even with the MCA data, you do not get reports of all active companies that are participating. The major reason being everybody does not file accounts regularly or on time. So do you go with all those companies whose accounts are available or do you make an estimate for the ones whose accounts are as yet awaited?
The practice in national accounts has been you estimate for the whole. So you blow up or make same adjustment for the whole. We do not get a comprehensive number for every possible establishment in all areas of national accounts. It is an estimate.
As far as other issues are concerned, he makes a valid case for greater access to the MCA database. But it is important to understand that the database is principally an e-governance platform. Its ownership is with the MCA. While technically a large chunk of the database is in the public domain, some elements are not. Giving people access to it through the governance platform raises a number of technical issues which that ministry will have to sort out.
Giving CSO extracts and giving research scholars access is different because many issues are involved. While the concern is valid, it will have to be addressed carefully.
If one estimates gross value added on a quarterly basis through other sources, there is a huge variance when compared to those estimated by the CSO...
The quarterly estimates are derived estimates with very limited information. This is largely because quarterly data at the time of generating estimates is incomplete. Even the process of advance filings is dynamic. Essentially what the CSO does while preparing quarterly estimates is it captures the estimates available at different points in time. This keeps getting updated and revised.
When we prepare the first quarter estimates, the method based on the data available from a set of indicators at a critical point of time. The only numbers which are available and are more complete are the previous year's full year estimate and the complete quarterly information of that year. So you take that and project the current year's data onto that pattern. You do the same exercise for the second quarter. In effect, as the year unfolds quarter by quarter, the numbers evolve.
In our current practice, we do not revise the first quarter numbers when we give out the second quarter estimates. We do a third quarter estimate, because then we are also doing the advance estimates. All these will again get revised when we release the full-year estimate. This introduces a certain degree of volatility in the quarterly estimates. But this is not greater than what would be within the bounds of the annual growth rate. The directional movement from quarter to quarter is in part a relationship of what happened in the previous year.
Is part of the confusion because of the wholesale price index (WPI) deflation?
For most economies, the normal presumption has been there will be a modest level of inflation. The problem in understanding real or constant price GDP growth is when the underlying inflation becomes negative. Deflators were not an issue when the economy was in steady price inflation. If I look at the production side today, close to 50 per cent off the items in the WPI basket are seeing negative price inflation. Unfortunately, not many GDP analysts have paid enough attention to the consequences of WPI being in negative territory for 14 months. In determining appropriate deflators, where value added is in areas directly associated with final consumption, it is appropriate to take consumer price index (CPI). But a large part of value addition takes places away from final consumption. In these, what should be the deflators? Typically we use WPI. Ideally, we should have used PPI (Producer Price Index). But, unfortunately, PPI is not available in India. So WPI is an approximation.
Would it not have been better to re-estimate the deflators, given the controversy around these, as some analysts have suggested?
We have to build deflators around the information we have. Is the WPI a correct indicator? The answer depends on the availability of data. But at a simpler level, if using the current mix of WPI and CPI deflators is a problem, then the same logic should be extended to the past as well. This principle has been the same in the old series as well. When CPI inflation was averaging in double digits well above WPI inflation, what would the real growth have been? It is not enough to say that the number in the present year is different. The older series also then needs to be reassessed. The logic has to go both ways.
Based on the new series, there was this view that small companies were performing better than large ones.
What we were able to show is that growth rates in the smaller segment were higher than those in the larger segments. This is not surprising. You would expect to see that with a lower base. But it was an interesting observation that there is much more dynamism at the bottom-end of the corporate pyramid than at the top.
How do you respond to those who say that this does not feel like a seven per cent growth?
What does one mean when you say this does not feel like? Supposing we were to re-compute the past series based on updated data and then say we got the growth rates between 2004 and 2011 wrong. Would that feel right? The problem is that everyone's perception is driven by what is available. For example, we have no contemporaneous data on jobs. So we feel based on what we have seen. When the jobs data come out, do we revise our feeling about what we felt then? The problem is not with data. The problem is the benchmark against which you analyse.
Also Read
By when will you come out with the back-series data?
We have finished the parts of the back-series work that are relatively straightforward. The main issue we are still verifying is the corporate sector estimates. We did not have the same data source in the past. So we are using some rules to revisit calculations made on information we had then. We will then compare these to what we know now through the Ministry of Corporate Affairs (MCA) database.
How different will the past GDP growth rates be under the new series as compared to earlier series?
I'm not going to speculate on what growth rates come out. But it is easy to say that growth rates on an average are going to be very different for a simple reason. In the old series, we had calculated GVA for 2011-12 at a certain amount. Under the new series, GVA in 2011-12 is lower. Now, between 2004-05 and 2011-12, on an average, we are going to get a lower amount. But how does one distribute that difference over the period? Is it uniform? That has to be done with an understanding of the individual components of growth.
Does that mean past growth rates will be lowered?
Not every year. It will not be a linear trend, because the previous years' numbers did not follow a linear trend. Some rule of thumb will have to be worked out. When you say that the average will be lower, it might be higher in some years and lower in some.
What is your response to the issues raised by R Nagaraj, professor at Indira Gandhi Institute of Development Research, over the new GDP series?
We have already answered the original set of concerns related to the manner in which estimates from the MCA database were used to project for the entire corporate sector. The basic argument is that even with the MCA data, you do not get reports of all active companies that are participating. The major reason being everybody does not file accounts regularly or on time. So do you go with all those companies whose accounts are available or do you make an estimate for the ones whose accounts are as yet awaited?
The practice in national accounts has been you estimate for the whole. So you blow up or make same adjustment for the whole. We do not get a comprehensive number for every possible establishment in all areas of national accounts. It is an estimate.
As far as other issues are concerned, he makes a valid case for greater access to the MCA database. But it is important to understand that the database is principally an e-governance platform. Its ownership is with the MCA. While technically a large chunk of the database is in the public domain, some elements are not. Giving people access to it through the governance platform raises a number of technical issues which that ministry will have to sort out.
Giving CSO extracts and giving research scholars access is different because many issues are involved. While the concern is valid, it will have to be addressed carefully.
If one estimates gross value added on a quarterly basis through other sources, there is a huge variance when compared to those estimated by the CSO...
The quarterly estimates are derived estimates with very limited information. This is largely because quarterly data at the time of generating estimates is incomplete. Even the process of advance filings is dynamic. Essentially what the CSO does while preparing quarterly estimates is it captures the estimates available at different points in time. This keeps getting updated and revised.
When we prepare the first quarter estimates, the method based on the data available from a set of indicators at a critical point of time. The only numbers which are available and are more complete are the previous year's full year estimate and the complete quarterly information of that year. So you take that and project the current year's data onto that pattern. You do the same exercise for the second quarter. In effect, as the year unfolds quarter by quarter, the numbers evolve.
In our current practice, we do not revise the first quarter numbers when we give out the second quarter estimates. We do a third quarter estimate, because then we are also doing the advance estimates. All these will again get revised when we release the full-year estimate. This introduces a certain degree of volatility in the quarterly estimates. But this is not greater than what would be within the bounds of the annual growth rate. The directional movement from quarter to quarter is in part a relationship of what happened in the previous year.
Is part of the confusion because of the wholesale price index (WPI) deflation?
For most economies, the normal presumption has been there will be a modest level of inflation. The problem in understanding real or constant price GDP growth is when the underlying inflation becomes negative. Deflators were not an issue when the economy was in steady price inflation. If I look at the production side today, close to 50 per cent off the items in the WPI basket are seeing negative price inflation. Unfortunately, not many GDP analysts have paid enough attention to the consequences of WPI being in negative territory for 14 months. In determining appropriate deflators, where value added is in areas directly associated with final consumption, it is appropriate to take consumer price index (CPI). But a large part of value addition takes places away from final consumption. In these, what should be the deflators? Typically we use WPI. Ideally, we should have used PPI (Producer Price Index). But, unfortunately, PPI is not available in India. So WPI is an approximation.
Would it not have been better to re-estimate the deflators, given the controversy around these, as some analysts have suggested?
We have to build deflators around the information we have. Is the WPI a correct indicator? The answer depends on the availability of data. But at a simpler level, if using the current mix of WPI and CPI deflators is a problem, then the same logic should be extended to the past as well. This principle has been the same in the old series as well. When CPI inflation was averaging in double digits well above WPI inflation, what would the real growth have been? It is not enough to say that the number in the present year is different. The older series also then needs to be reassessed. The logic has to go both ways.
Based on the new series, there was this view that small companies were performing better than large ones.
What we were able to show is that growth rates in the smaller segment were higher than those in the larger segments. This is not surprising. You would expect to see that with a lower base. But it was an interesting observation that there is much more dynamism at the bottom-end of the corporate pyramid than at the top.