Gross domestic product grew at a sluggish 4.4 per cent in the quarter ended June 2013, much below the expectations of policymakers and analysts. This led to various economists comparing the current situation with past crises. However, Chief Statistician T C A Anant, in an interview with Somesh Jha, says this a unique crisis and should be dealt with keeping the current situation in mind. Edited excerpts:
Prime Minister Manmohan Singh and his economic advisory council chief, C Rangarajan, have said the Indian economy has the potential to grow 5.5 per cent this financial year. With growth at 4.4 per cent in the first quarter and likely flattish growth in the second, do you think this is possible?
Growth is an outcome of a variety of things. A lot of these are based on people’s plans, expectations and how they act upon those. When the prime minister or the finance minister makes statements on growth, these are based on what plans they frame.
I have always been optimistic of India’s potential to grow. We have great set of opportunities for growth.
However, I am not putting a time period to this. We have highly skilled manpower and a strong demographic potential, positive factors one should certainly take into account.
Recently, Ratan Tata had said India was losing the confidence of the world. What do you think?
Ratan Tata is reflecting his own views as a leading industrialist. He is speaking from his perspective. Therefore, it would not be appropriate for me to assess his statement.
The ghost of the 2009 global financial crisis still haunts us. We saw GDP growth at a four-year low and Purchasing Managers’ Index (PMI) data showed the manufacturing sector contracted for the first time since March 2009. Are we heading to a 2008-09-like crisis?
The two situations are not comparable. 2008-09 was very different, domestically and globally. At that time, all economies had faced a crisis of a different kind, after a long boom period. Hence, it is not comparable.
The effect of agriculture has not been seen yet in the first quarter. But it has been witnessed even if agriculture grows more than five per cent, it has little direct impact on the GDP. This was seen in this quarter, when agriculture contributed 13 per cent to GDP, while the rest was from secondary and tertiary sectors. Do you think agriculture can really lift the economy, as our policymakers hope?
Agriculture contributes in a lot of ways. In terms of contribution to value-add, it can be rightly said it constitutes around 13 per cent of GDP. However, a large number of people are still dependent on agriculture.
If the monsoon had been bad, think about the impact it would have had on the sentiment. Rains do play a role, though the direct impact on growth could probably be small, as seen in the numbers. But the indirect effect, through sentiment, is significant. The willingness of people to invest in villages because of the perception of continued opportunities in rural areas cannot be quantified in numbers.
Demand, in the form of private final consumption expenditure (PFCE), grew a mere 1.62 per cent in the quarter ended June 2013, the lowest in eleven years. With the rupee falling and inflation expected to rise, demand could remain subdued in the coming months as well, forcing manufacturers to limit capacity addition. What measures could lead to a rise in demand?
The recent data reveal PFCE, as a share of GDP at constant prices, has dipped, and remained more or less same at current prices
Over the last seven-eight years, consumption has been reasonably robust because of the element of redistribution that has taken place. How this would affect growth isn’t easy to say, but long-term dynamics are influenced by investment that has contracted in the form of gross fixed capital formation and that is where the government should focus. It should bolster steps to improve investment, clear projects and implement those quickly. Also, creating an environment conducive to encouraging people to take up long-term projects is vital.
The Reserve bank of India (RBI) is already struggling to address the depreciating rupee, which also raises inflation. Do you think it should opt for rate cuts to prop demand?
Typically, I do not like to make a statement on what RBI would do. RBI has to take a very tough call. It has to balance a variety of considerations, including both domestic and international factors. Principally, it plays in the domestic market, dealing with the demand and supply of foreign currency. One of the major factors affecting the domestic money market is what happens in the international side of the markets. RBI’s degree of freedom is determined on the extent of what would happen in foreign markets. So, we would have to wait and see what steps they take, keeping these under consideration.
So, if not a 2009-like crisis, but with slowing growth, high deficits, high inflation, a weak external situation and a falling currency, do you think that it is a unique crisis which we are in?
Each crisis is unique. You can never talk about examining these as examining the past. The underlined economy, the international environment, the way we interface with these is different in all situations. Therefore, each economic situation should be studied on its own. People tend to compare this with past situations but it does not really work that way. Yes, it is unique and they need to be examined in the context in which they exist today.
Zyfin, a financial information firm, recently came out with a new methodology of GDP estimation; it computed GDP on a sequential basis. Do you think this is a good idea?
I don’t know what it has done. However, more analysis of the Indian national accounts is desirable, but I cannot say whether this particular exercise is useful or not till I study the model.
A lot of companies do develop their own tracking mechanisms, which is good because from a purely practical point of view, if people do their own exercises and track largely well, it gives you, as a statistician, a measure of confidence that whatever you are doing is broadly right. This gives us confidence. Likewise, if we bring a number which no one is able to calibrate with, predict or build up, people tend to question us. But I would say it is a good exercise.
