GDP revisions pose larger questions on the hyped focus on macro stuff…

India’s Statistical Ministry released a note revising and updating the base .year for GDP. The exercise is nothing new and happens in every country periodically. Though there are some more changes this time. Earlier GDP was  reported at Factor cost (sector-wise) and now will be reported at market prices (expenditure method) based on international practices.

However, the recent update raises many questions as India’ growth wasn’t as weak as we were told. The track record of previous government was much better than imagined. Infact the economy was already on an upswing and the recent media tamasha over how economy is improving after the new government was not really true.

The new definition would throw out surprising results for performance of the economy, making some years worse and others better than considered till now. The second stint of the UPA government has yielded a 7.5 per cent average annual growth rate in the new parameters, against 6.7 per cent with the older one and the previous base year of 2004-05. If only the base year is changed to 2011-12 and the older concept of GDP is used, the average annual growth will be 7.1 per cent.

The government will henceforth measure GDP at market prices, which includes indirect taxes. Till now, the government has been computing it in terms of GDP at factor cost, which excludes these.

Also, products have been added to the new definition of GDP. Besides, the base year has been changed to 2011-12 from 2004-05 but this will impact only the last two years of the UPA government.

On the other hand, the first stint of thehad delivered eight per cent annual growth compared to the 8.4 per cent measured earlier.

The UPA government had drawn flak for growth slowing to a decadal low in 2012-13 and below five per cent for the consecutive years of 2012-13 and 2013-14. However, in the new methodology, the rate was not below five per cent in these two years; 2012-13 delivered 5.1 per cent and 2013-14 one of 6.9 per cent. These are much higher than the 3.7 per cent that the global financial crisis year yielded in the new method (the earlier measure had this at 6.7 per cent).

These revisions are massive given the political context. The outgoing govt would be wishing that the numbers were released earlier. It wouldn’t have to face the hell it faced. The incoming govt must be breathing a sigh of relief as it could get mileage from the older weaker numbers. It has wider policy implications as well. If these numbers were there call to cut rates etc would not have been there.

The revisions are not unique to India as US revised data showed 2001 was not really a recession. This had wider policy implications as Fed ended up easing policy more than required which fueled the bubble and so on.

Once again, the revised numbers show why we need to pay lesser attention on just macro trends. There is a need to look at wider data from alternate sources than just the official numbers which are likely to be revised either way. But then there was wider data available in case of US as well which indicated a recession. The official macro data colors all other data in a significant manner. But even then, India hardly releases enough data from different sources to get other ideas.

 

 

One Response to “GDP revisions pose larger questions on the hyped focus on macro stuff…”

  1. econ neel Says:

    Reblogged this on Econ Neel and commented:
    Waited for 3 days to hear from Ankit on this.

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