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The ministry of statistics and programme implementation (Mospi) on Monday held a workshop to dispel doubts over new series of gross domestic product (GDP) data, cautioning users not to compare the headline number in the new series with that in the old one.
However, some doubts over the new methodology remained, as was evident from the viewpoints of analysts who attended the workshop. The doubts pertained to issues such as treatment of banks lending to the government, and change in national accounts once the goods and services tax (GST) is rolled out.
“... it is like comparing apple to oranges. It is entirely possible that five per cent growth rate in old series is qualitatively in the same ballpark as 6.5 or 7 per cent in the new series. It is possible. I don’t know,” chief statistician T C A Anant said in his inaugural address.
India’s economic growth jumped to 5.1 per cent for 2012-13 in the new series from 4.5 per cent in the old data, while 2013-14 saw the economic expansion climb further to 6.9 per cent from 4.7 per cent. Advance estimates pegged the growth at 7.4 per cent for 2014-15 and the Economic Survey projected it to be 8.1-8.5 per cent.
What has surprised many is that the economy suddenly seems to be growing at a comfortable rate, even given the dynamics of the global economy. For 2014-15, India turned out to be the fastest-growing large economy, equalling China’s growth (for 2014) and is projected to expand higher than the Chinese in the current financial year. This does not get indicated by other indicators such as credit growth, exports growth, industrial growth (barring February figure of five per cent).
It is this hype against which Anant, who is Mospi secretary, cautioned. According to him, the new series of national accounts reflects a series, which is structurally different from the past.
“At this moment, we do not have enough information to give you clearer understanding of long-run growth dynamics which emerges in the new series vis-a- vis the past. That exercise we are still working,” said Anant.
He acknowledged that the back series will be the one which would be partly assumption-driven. This is so because the new series has different sourcing of the data. For instance, he said value-added data is available for part of the government sector and corporate sector and until the new series came in, neither of these two segments was captured entirely.
Anant said in the government sector, earlier data used to capture the Central and state governments.
“The big change that we made was that local bodies which we were capturing on a sample basis is now being captured on complete account basis for 60-70 per cent. The work is in progress to extend it to close to 100 per cent. This was a big change, for our government accounting improved enormously,” he said.
For the latest series, MoSPI analysed accounts of local bodies of 11 states while for others, national level estimates have been apportioned to the states based on the share of transfers received by the state. Further, the revised series has also analysed accounts of 82 autonomous institutions, of which 27 are engaged in Research and Development (R&D), while the balance are engaged in non-R&D. It is possible that the increase in coverage, which essentially translates to lowering the degree of extrapolation, has led to more precise estimates of government final consumption expenditure, which has led to differences between the old and new series.
MoSPI and the Reserve Bank of India are working closely with corporate affairs ministry to use data in MCA 21 (the e-governance initiative of the ministry) for national accounts and the data RBI is interested in.
“From 2011-12, we were able to capture 85 per cent of the companies which file returns on this data base,” Anant added.
Earlier, Index of Industrial Production data was used in provisional GDP data. Annual Survey of Industries (ASI) figures were used subsequently after 18 months in GDP data.
According to Aditi Nayar, senior economist at ICRA, “The IIP provides volume based trends for a limited set of factories with a relatively short time lag. The shift to MCA 21 database has enhanced coverage for the annual GDP series. However, this may not help improve quarterly estimation, which is crucial for policy makers to respond in a timely manner to evolving trends.”
Anant said the other shift was in the corporate manufacturing data as figures were used, using enterprise-based coverage against establishment-based approach in earlier series.
“Earlier, establishment-based data was better captured in ASI than enterprise-based, which was relatively a small sample. Now, with corporate data base, our coverage for enterprise-is almost universal,” Anant noted.
In the establishment approach, calculation of production is done plant by plant.
On the other hand, in the enterprises approach, the activities at headquarters are taken into account. For instance, after an item is produced, various marketing and sales promotion efforts go on at the headquarters level.
In the new GDP data, the establishment approach is used for only small companies as they have a few plants or sometimes a single plant. However, for large companies, the enterprises approach is used.
Anant said the second area in which a huge change was made is in the use of indicators by which accounts are updated on year-to-year basis. He referred to data on taxes, both Central and states, being used now. Some analysts raised the issue of frequent changes in sales tax rates which could complicate the usage of sales tax as proxy for information on certain items.
In addition, there were a number of important conceptual changes made that went into this base revision.
One of them is employment figure which enters into national accounts.
In earlier series, employment was taken as a homogenous number which did not differentiate between different categories of jobs such as home-based workers, unpaid workers, workers working for wages.
"In this series, more nuance approach to employment was applied where productivity-based employment figures were used," said Anant.
Further, the new series records gold and silver ornaments in valuables and savings as opposed to the previous practice of recording them in private final consumption expenditure.
Analysts present in the meeting were also divided over the treatment of bank lending to government, which is now recorded as savings. This implies that profits recorded on government securities are now treated as part of savings.
Another issue raised by analysts was the sharp growth of the financial, real estate and professional services sector. This growth was in sharp contrast to the slowdown in both bank credit and deposit growth. Surprisingly, MoSPI clarified real estate was the main contributor to growth in this sector. But as the general perception was one of a severe slowdown in the real estate sector, this clarification is bound to raise questions.
A major challenge for the CSO going forward is going to be with the implementation of GST, analysts said. How this shift in tax regime will be incorporated is yet to be figured out.
