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DAILY NEWS ANALYSIS

  • 16 September, 2019

  • Min Read

Why India’s growth figures are off the mark.

GS-III: Why India’s growth figures are off the mark.

News

During the global financial crisis it was said that the experts were behind the curve. The IMF and financial sector experts continued to predict till October 2008 that the global economy would grow rather than shrink.

Explaining the markdown:

  • The economic growth rate (quarterly) has been sliding for the last ?ve quarters from 8% to 7% to 6.6% to 5.8% and now to 5%.
  • 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%.
  • They are not independent data gathering agencies and depend on o?cial data.
  • The investment rate has hovered at around 30% for the last several years because the capacity utilisation in the economy has been around 75%.
  • Unless this rises, fresh investment will mean even lower capacity utilisation and lower profitability since capital will be underutilised.
  • Data from the Monitoring Indian Economy Pvt. Ltd. shows that investment proposals are at a 14­year low.
  • In the last year, the RBI has cut interest rates four times and by a total of more than 1% but the investment has not budged.

The source:

  • In simple terms, the reason is that the data for this sector is collected once in ve years( called reference years) since the sector has tens of millions of units for which data cannot be collected monthly, quarterly or even annually.
  • In between the reference years, the data is only projected on various assumptions.
  • Even for the annual estimates, basically, data for the organised sector are used like in case of mining, banking, hotels and restaurants, and transport.
  • For construction, steel, glass, etc. are used which are also derived from the organised sector production.
  • Thus, the implicit assumption is that the organised sector can be a proxy for the unorganised sector.
  • The decline in the workforce, the rise in the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act, etc. Suggest that the unorganised sector has declined by at least 10%. If this is taken into account, the current rate of growth is much less than 5%.

Source: THE HINDU


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