The recently released GDP data showed there was a trade surplus in Q4 2011-12.
[In the Expenditure side classification, Exports were Rs 433,514 Cr and Imports were 424,743 Cr (constant prices). In current prices terms exports are 679,926 Cr, Imports were 631,398 Cr. As exports more than imports, you have trade surplus.]
This was simply laughable as it is widely known India has a trade deficit and a current account deficit. This was covered in the media as well. Though not as much as one would like. Perhaps data issues are a given now.
So where did these numbers come from? No one really knows..
Govt. officials defend this saying it is adjustment:
Pronab Sen, former Chief Statistician of India and currently principal adviser to the Planning Commission, explained that such a discrepancy was a result of a economic rationale that is followed all over the world.
“There is always a mismatch between the trade numbers as they are adjusted to balance out the expenditure and consumption numbers with the current account. It an economic principle of equilibrium and is a standard practice globally,” Sen told ET.
So adjustment leads to a the large trade deficit becoming a surplus. Amazing!
Sujan Hajra (ex RBI and currently an econ with a brokerage house) explains further:
Each of the 34 million taxpayers pays Rs 1,500 every year for all the data released by the government of India. The annual budget of the Ministry of Statistics and Programme Implementation (MoSPI) – the apex statistical ministry in India – alone was Rs 5,000 crore this year. If clubbed with other statistical wings of the central, state and local governments as also with the spending on data released by other public authorities, the tab that an average Indian picks up for the country’s statistical system goes up manifold. The MoSPI budget alone has trebled over two years. Yet, the quality of data that are released in India has deteriorated considerably in the recent past. We now pay a rapidly increasing price for official data and, in turn, get numbers that are simply fudged or have higher degrees of error.
On May 31, the government released India’s GDP data for the fourth quarter of 2011-12. The official release claimed a 5.3 per cent GDP growth. But it turns out that the GDP data incorporated a surplus of $10 billion in the external trade account (export minus import of goods and services). Data released by the commerce ministry show that during the same quarter, India had a goods trade deficit of $44 billion. The maximum quarterly surplus that India has ever generated in services (mainly software) trade is $15 billion. So, rather than a $10-billion surplus, as surreptitiously claimed in the GDP figures, a deficit of $25-30 billion in India’s trade account is more likely. If we take account of this anomaly, then GDP in the January-March quarter grew at an even worse rate of 1.5 per cent and not 5.3 per cent, as the headlines would have us believe.
Well most believe GDP calculated using the sectoral approach which stood at 5.3% to be reliable. It is unlikely that GDP was 1.5%. But whatever, that is huge discrepancy..
Hajra points the issues with such reporting which leads to issues all around. Why data remains inaccurate?
There are several reasons for the huge inaccuracies and frequent and sharp revisions in official data. First, the statistical system, including the legal provisions governing data collection, is inadequate.
Second, during a volatile economic climate, statistical models used by official agencies for estimations do not adequately replicate the reality. Third, there is lack of coordination among the different arms of official data agencies; little understanding of the nature of various data and the inter-linkages therein among ground-level data compilers; and inadequate supervision at higher levels. Currently, these factors seem to be assuming serious proportions in India.
Finally, the public in general and financial market participants in particular are more sensitive to the first data release rather than the subsequent revisions. Keeping such psychological factors in mind, there seems to be an attempt by official agencies to scale down the real extent of economic deterioration during periods of major economic slowdown at the time of the first release of major macro data.
The last bit is interesting. Doctoring data based on the business cycle. There are accusations by many that much of data is managed. It will be great to read a study proving the same..
RBI Governor gave a great speech in 2009 on the data issues. Nothing seems to be happening though…