Recovery? Different numbers tell different stories -Jahangir Aziz

-The Indian Express

With a more accurate way of measuring GDP growth, the pace of recovery is much slower in real terms

Imagine driving a car whose speedometer cannot tell the current speed but only relative to what it was four hours ago. Apart from the comical encounters with police when stopped for speeding and the predicament in defining a “speed limit”, there is a more fundamental problem it would create. The driver will not know whether the car is accelerating or decelerating and, therefore, whether to press the accelerator or the brake. This is a central weakness of India’s GDP statistics, exemplified by last week’s 4Q20 print.

The CSO press release stated that India grew 0.4 per cent on a year-ago basis, that is, relative to the level of GDP four quarters before. Many heaved a sigh of relief at growth turning positive after two quarters of negative year-ago prints (-24.4 per cent in 2Q20 and -7.3 per cent in 3Q20) and declared that growth would accelerate from hereon as mobility increased and the fiscal policy support started to bite.

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Nothing could be further from the truth. To know whether the economy will accelerate or decelerate, one needs to know its current speed. Not what it is relative to a year ago. To do that, one needs to compute the quarter-on-quarter growth as almost all large economies do. These computations are not easy, because each quarter has its own characteristics or, as economists call it, “seasonality”, which naturally increases or decreases activity in that period. Think of quarters with festivals or with harvests versus those without them. The modern economy is more complicated as its seasonal patterns change when its structure does. To compare apples with apples, these changes to seasonality need to be excluded from the data.

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