Faster, higher, stronger

The Central Statistical Organisation (CSO) of the Government of India put out three sets of numbers of some significance yesterday. The first of these comprised the estimates of GDP computed with a new base year, 1999-2000. Before this, the base year was 1993-94. Given the dramatic changes visible in so many sectors of the economy over this six-year period, there was some expectation that the new base would bring with it a significant upward revision in the GDP estimate. This expectation was strengthened by the revision made a few weeks ago by the Chinese statistical bureau, which ratcheted up its GDP estimate by as much as 17 per cent when revising the base. In any event, the Indian statistical system seems to have been far more effective at capturing the fundamentals of the economy. The estimate for GDP in the base year 1999-2000 is only 1.7 per cent higher in the new series than it was under the old. In subsequent years, the gap becomes even smaller. The numbers for the two series are equal in 2002-03 and there is only a 0.5 per cent elevation in the new series in 2004-05.

Be that as it may, the second set of numbers, the quick estimates for GDP during 2004-05 suggest that the economy actually grew at 7.5 per cent that year, instead of the 6.9 per cent that was estimated earlier. This revision is not the result of the change in base year per se; it is based on somewhat more precise estimates of various components of GDP as more data come in from the field. As heartening as upward revisions usually are, there is a flip side to this. A higher base in 2004-05 would mean a lower growth rate in 2005-06. The Reserve Bank of India recently scaled up its own assessment to the 7.5-8 per cent range, while the government believes that growth will be comfortably above the 7 per cent mark. While estimates will have to be moderated somewhat, it is quite likely that growth during the current year will cross the 7 per cent mark, marking the second three-year 7 per cent plus streak in our history, the last one being 1994-97. Of course, that streak ended with inflation nudging 8 per cent, the East Asian crisis and a failed monsoon, the combined impacts of which, precipitated five years of sluggishness. With the exception of high and volatile oil prices, no threat looms over this streak, which looks all set to continue into the next year.

Finally, the CSO also released estimates of the GDP by expenditure classification""private consumption, investment, government consumption and exports""for 2004-05. The savings and investment numbers are striking. The investment-GDP ratio touched 30.1 per cent, compared with 26.7 per cent in the previous year. This number is more in line with the micro-level data on investment, reinforcing the story that investment has been a, if not the, major driver of growth in the last couple of years. By contrast, domestic savings increased only marginally from 28.9 per cent of GDP in 2003-04 to 29.1 per cent in 2004-05. The positive aspect of this was the larger contribution of the public sector, partly because of a reduced deficit. All in all, these numbers reinforce the perception of a generally healthy macroeconomic situation.