Why India's growth figures are off the mark -Arun Kumar
The over-reliance on the organised sector for official GDP data is causing a gross miscalculation.
During the global financial crisis, it was said that the experts were behind the curve. The International Monetary Fund (IMF) and financial sector experts continued to predict till October 2008 that the global economy would grow rather than shrink. They were way off the mark since the global economy was rapidly slipping into a great recession.
Explaining the markdown
Is India facing a similar situation at present? The economic growth rate (quarterly) has been sliding for the last five quarters from 8% to 7% to 6.6% to 5.8% and now to 5%. Yet, experts have been talking of a 7% annual rate of growth; every quarter when the rate of growth has been announced, they have argued that things have bottomed out and that the rate would rise henceforth.
The Economic Survey in July talked of a growth rate of 7% for the current year. The Reserve Bank of India (RBI), in its August policy statement, talked of a slowdown to 6.9%, from the 7% predicted in June and 7.2% predicted before that. The Asian Development Bank cut its growth forecast from 7.2% to 7% in April 2019. Similar is the case with the IMF which cut its forecast for the year from 7.3% to 7%. So, they all talked of a 7% rate of growth when a year earlier it had fallen below that.
How could these agencies be so far off with their estimates? The reason is that they are not independent data gathering agencies and depend on official data. So, if official data is erroneous, their projections would also turn out to be incorrect. Clearly, the government is interested in projecting a good image and so discounts bad news and ramps up data.
The question to ask is, if the economy is growing at 5 or 6%, which is historically a good rate of growth, why is investment rate not rising and consumption in the economy stagnant? Where is growth dissipating? The alternative explanation is that the rate of growth is much less than 5%; that is why investment rate and consumption are stagnating or declining.
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