Economists question 8.

8% Q1 GDP growth number - The Economic Times

Thu, Sep 02, 2010 | Updated 09.49PM IST

1 Sep, 2010, 03.17AM IST,ET Bureau

Economists question 8.8% Q1 GDP growth number

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NEW DELHI: The governments claim that the Indian economy grew at its fastest pace in over two years in the AprilJune quarter has been questioned by economists, who said the huge gap between the different growth estimates was confusing. The value of all goods and services produced by India, or the gross domestic product (GDP), grew 8.8% in the first quarter of the current fiscal, according to the `supply-side growth estimate arrived from various sectors such as agriculture, industry and services. The numbers were 6% a year ago and 8.6% in the previous quarter. But, the robust 8.8% growth figure was not corroborated by the `demand side of the equation based on transactions in the market place. The demand numbercalculated from private and government consumption, investment and net exports showed that the economy grew as low as 3.7% during the first quarter of the current year. On an average, the divergence is well below 0.5%, though on a few occasions it has touched 2-3%. I think there is a methodological mess in the GDP estimates, said Mridul Saggar, chief economist at Kotak Securities. Indirect taxes are netted out and subsidies added to the demand side of the GDP figure to arrive at the supply-side estimate. Since excise duties were rolled back and subsidies cut, the demand-side GDP growth should have been higher than the supply-side number. But, it was the reverse, as per government data. The divergence (of 5.1%) is at a record high and also inexplicable... Two-thirds of the demand-side GDP growth in the first quarter of this year is because of discrepancies. Excluding discrepancies, 1.4% growth was one of the lowest since start of the quarterly data in the first quarter of FY00, said Sujan Hajra and Gautam Singh of Anand Rathi Financial Services. An official in the ministry of statistics and programme implementation, which is responsible for compiling the data, dismissed the concerns over the quality of data. We have checked the data. There is some seasonal impact as well as some differences in import and export figures which cant be simply calculated on the basis of inflation, he said. Another worrying sign in the government data is the dismal growth in private consumption, which rose 0.3% in the first three months of the fiscal. Its lowest in a decade. Government consumption declined 0.6% the first fall in 11 quarters, said Mr Hajra and Mr Singh as they maintained a growth target of 6.5% for the current fiscal.
http://economictimes.indiatimes.com/articleshow/6471484.cms?prtpage=1 (1 of 2) [9/2/2010 9:51:16 PM]

Economists question 8.8% Q1 GDP growth number - The Economic Times

According to Abheek Barua, chief economist at HDFC Bank, there is a major discrepancy in the data as there is huge variance between con-sumption numbers at current and constant prices. For instance, the demand-side GDP grew at 24.8% in nominal terms or current prices, but in real terms at constant prices net of inflation the growth is as low as 3.7%. The difference is much more than the headline inflation number, which averaged at 11% in the first quarter this fiscal. So, are the inflation indices missing something or are our GDP numbers wrong? said Mr Saggar.

Any question mark over GDP data, considered the most authentic gauge of the economy, will only make the task of the central bank that much difficult as it tries to check inflation. While the benchmark 10-year bond yield fell by two basis points to 7.95%, after the release of the data, the stock market slipped 60.99 points. A low-consumption growth number comes amid a lower-than-estimated US growth rate for April-June and renewed concerns in Ja-pan, which announced a fiscal package on Monday to shore up the economy. Even though finance minister Pranab Mukherjee is confi-dent of the GDP growing in the range of 8.5% to 8.75%, some scepti-cism has set in. Overall, June may mark the peak quarterly GDP growth in FY11. We are currently reviewing our estimates with a mind to downgrade (from 9%), said Sonal Varma of Nomura in a re-search note as she questioned the GDP data. The moderation in industrial growth to 7.1% in June and exports growth to 13.2% in July has created expectations that RBI may not lift rates in its September 16 review. RBI governor Duvvuri Subbarao had also said last week inflationary pressures were easing. With inflation rates coming down to manageable levels, we could expect a near-temporary pause by RBI, said Mr Saggar.

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http://economictimes.indiatimes.com/articleshow/6471484.cms?prtpage=1 (2 of 2) [9/2/2010 9:51:16 PM]