CSO’s New Growth Projections : Putting Credibility At Risk

CSO’s New Growth Projections : Putting Credibility At Risk

Veeraiah Konduri

India’s growth story is in news always. During the UPA- 2 tenure, it was in news for its so called ‘policy paralysis’. It was in news due to repeated downgrades of sovereign ratings by the so called guardians of international finance capital which forced the then Finance Minister Mr. Chidambarm to seek an exclusive audience to convince them that nothing is going wrong in country’s economy. He issued interim circulars to all the ministries and departments asking them to trim the public expenditure in the last quarter so that the fiscal deficit can be seen under control. It was every ones’ knowledge that the though India’s economy decoupled with the global economy and withstood the global financial crisis of 2008, but it came under the pressure due to the post crisis developments and consequences which had a profound impact on county’s growth trajectory. For about three years since 2011, the growth rate of economy crippled to mere 5 percent. All the sectors witnessed either stagnation or deceleration of growth.

Actually, for about 2 years, this decelerating growth rate became the punch bag for the opposition and neoliberal economic think tanks which was further fuelled by the Namo mantra of Gujrat model of development debate. This two year long debate undoubtedly helped the BJP to grab some focus on economic front and with elections in the offing kept the BJP in sound campaign basis. The results were there to see. Every one expected some turn around of economy under the new regime. But that did not happened. Even until January 30^th, when the Central Statistical Organisation released its new series based estimates of national income and growth, all the international rating agencies and institutions like IMF pegged the growth rate for India at around 5 – 6 % only.

With the growth projections released by Central Statistical Organisation (CSO) basing on the new base year, the whole scenario has undergone a qualitative change. In the words of former economic adviser to Finance Minister, Shankar Acharya, “ Until two months, we thought we had pretty good idea (of country’s growth rate).Not, so after January 30^,  2015, when the Central Statistical Organisation released its newly based estimates of national income and growth.”  The new growth projections are obviously welcomed by the ruling BJP and its Finance Minister, while presenting his full budget on February 28^th 2015 in Parliament,  patted on his own back when he said, “based on the new series, real GDP growth is expected to accelerate to 7.4%, making India the fastest growing large economy in the world. The Central Statistics Office has recently released a new series for GDP, which involves a number of changes relative to the old series. Based on the new series, estimated GDP growth for 2014-15 is 7.4%.  Growth in 2015-16 is expected to be between 8 to 8.5%. Aiming for a double-digit rate seems feasible very soon.” Even some economists went to credit that India is only the country growing at the rate that surpasses even in China. As usual, all this was attributed to Modi’s minimum government and maximum governance.

Here the question is how far the few months old BJP government with Modi at the helm fueled the confidence to encourage the economy to run so fast and in fact what are the measures that are so different from its predecessors. Except policy announcements of allowing unbridled foreign direct investments across the economy, nothing much has changed since the elections. Then what prompted the CSO to come to such conclusion about country’s economy is the big news circulating through the policy makers and academics who are trying to interpret the new data sets to understand the structure and trends in country’s economy. The gap between the actual reality on the ground and the projected estimation sare not matching at all in any aspect. That led to the warning  by none other than Reserve Bank of India Governor who said except on the count of inflation, nothing seems believable in the CSO estimations.

Estimating nation’s economy has been underwent several changes over the period of time. As W.S Jevos (1835 – 1882) said, economics was calculus of pleasure and pain and mathematics was its method, for economic science dealt in quantities rather than qualities. Thus any study of economy includes it subjects – the people, their aspirations, well being and problems. To identify the problems and gauge the well being and estimate the aspirations, government needs bundles of statistical data grouped into quantities and decipher the trends. If the so called economic estimates are closer to the ground reality, would be well received and provides key inputs while government designs new policies. If the estimates are far from ground reality, not only the accounting agency’s credibility comes under risk but also the governments’ will be misguided while chalking out new policies. This is exactly what is happening in India today.

Before questioning the new estimates, let us understand the government’s accounting mechanism and practice. Government estimates basing on one particular year’s constant prices and that is generally known as base year.  As new conditions and situations keeps on emerging in dialectical interacting not only with the different components of economy but also with different players of international economy, the vanguards of nation’s accounting system keeps on upgrading their basis for estimations. Some times, such upgrades includes changes in base year and some times changes in weightages for different sectors keeping in mind the sectoral contribution to economy. To capture and factor the everlasting changes into accounting the base year is used to be changed once in a decade. The independent India started its own accounting of nation’s economy having 1948-1949 as its base year. Until then, the Indian economy’s levers were controlled from London by the colonial administration. By 1967 the collection of nations accounts became a structured and regular process. 1960-61 financial year considered as base year for estimates of 1967. Likewise for 1988 year’s economic estimates, 1970-71 year became the base year.  With on setting of new economic policies and closer integration of nation’s economy with international economy and change of sectoral composition of economy, the traditional weightage was modified to suit the changed situation. Accordingly for 1999 economic estimates 1993-94 was considered as the base year. In such a way for the current estimates of nation’s economy 2003-2004 economic year is being considered as the base year. For all accounting purposes, the accounts computed and compiled by the Reserve Bank of India, National Sample Survey and other related organizations

The current estimates of CSO were derived using 2011-12 as its base year. This change led to rise of eye brows in from several quarters. The CSO for a change, imputed the details from MAC 21 set of data relating to private corporate sector expenditure and consequential results. According to the new data released by CSO, though the economic growth stagnated around 5 % until 2012-13 financial years, it picked up and the growth rate reached 6.6 % surprisingly. Basing this estimation only the Finance Minister assured the nation that the growth in 2015-16 would be between 8 to 8.5%. But except the growth estimations, nothing is coming true, neither the industrial production nor the manufacturing sector growth, nor the primary sector growth, nor savings and investments. All the indicators such as exports, employment generation are continuing with their downward trend. Still the CSO is yet to come to terms with the criticism. The CSO is shielding itself by saying that this type of revision is required to adopt the changes as per the national accounting system adopted under the guidance of United Nations. Much light is yet to be shed on the actual condition of economy sans this hype generated by the CSO’s revised estimates. It is basing its estimates on the data furnished by the corporate sector to the Ministry of Corporate Affairs by way of voluntary disclosures. Though the new estimates expected the private sector investments would be around 6.89 crore but actually it did not exceeded 4 lakh crores, as per the newspaper reports. According to R. Nagaraj, who happened to be the non-official member, R. Nagarj, “ the revision of estimates between the two versions boosted investments for the same year by 34 percent”.

These new numbers would have had a different implications for economy as well as the policy making. Had that been the case this size of investment, there should have been growth in the manufacturing sector but the as latest as February’s index of industrial production failed to pass the test. The infrastructure sector stagnated and crippling. The economy is so entangled with the new type economy that the RBI under the chairmanship of none other than the poster boy of reforms, Raghuram Rajan warned the banks to lend to private sector involved in infrastructure sector. The service sector which became the back bone for the country’s economy saddled with the global developments. Despite the large scale privatization of precious national natural resources the mining sector which is key component of economy failed to take off. So called industrial hubs and SEZs confined themselves to amass the tax concessions and shoot up their reserves rather than shooting up economy, and employment. The private savings as well as spending touching a new low. The government spending, under the iron fist of fiscal fundamentalism, drastically decreased. This forced the votaries of neoliberal reforms to recommend for an escalated public spending, particularly government spending to shore up the confidence levels in economy. In such a situation, the figures and the data sets released by the nation’s premier accounting firm, CSO only puts its credibility at risk.