GDP fudging Notes

A lot has been said about India’s new method of GDP computing. This is a ‘statistical illusion’ method. Unless something changes dramatically in how companies and consumers behave, the economy is more likely to be expanding at 5% only, not the 7.6% as claimed by the government. 

Some notes are:
  • The CSO put the India’s growth rate for Oct-Dec 2016, the demonetization quarter, at 7% which is surprising to all. The government pegged GDP growth at a higher than 7.1% for the current fiscal despite note ban. The GDP growth also hints at the fact that the farmers grew richer, an absurdity.
  • Only major factor that benefited the Modi government in the past year was the crash in oil prices, which helped lessen the burden on import bill and the inflation. Except this, there has not been any improvement in the growth triggers in the domestic market regardless of what the GDP number shows.
  • Prices of oil and other commodities tumbled , causing wholesale prices to decline. Despite this, deflation the price of consumer staples is still rising by over 5% a year. The gap between the change in the two indices swelled from nothing to nine percentage points before falling back to six percentage points. Most services have not benefited much from low commodity prices. The blended inflation figure used to deflate the nominal data is too low, making real GDP growth come out too high.
  • The bulk of growth has apparently materialized from Rs 140,000 crore of ‘discrepancies’ in our balance sheets. This number was less than Rs 30,000 crore a year ago. The more than four-fold jump in ‘discrepancies’ and padded it to the GDP number.
  • Private consumption is also supposed to have grown by an astronomical Rs 127,000 crore in one year. I do not know a single person whose consumption has recently rocketed up. 
  • The most frightening is a Rs 17,000 crore plus drop in investment, which reflects a lack of confidence in Modi’s India. 
  • The valuation of Flipkart has been knocked down several times by investors. This company cannot hire on campus because its pockets are empty. Its peers aren’t doing any better. All state-owned banks are drowning in red: Bank of India lost more than Rs 6,000 crore in a year, tiny Canara Bank is nearly Rs 4,000 crore in the red. Our largest bank, state-owned SBI, saw profits sliding 66%.
  • The high level of discrepancies also arise as commentators work with current and not constant prices – data based on the former are automatically higher.
  • Raghuram Rajan took the example of two mothers who babysit each other's child instead of their own and exchange money as charges. There is a rise in economic activity as each pays the other, but the net effect on the economy is questionable. Obviously lots of people have thought how to improve our counting of GDP and going forward that is something that we will have to think about. We should be careful about how we count.
  • Bank credit to industry (YoY % growth)
            Jan'14 -- 12.9%
            Oct'14 --   7.8%
            Oct'15 --   4.6%
  • The worst hit has been medium-sized companies, where bank lending has contracted by 10.9% as against a contraction of 1.1% in the same period last year. There is more pain left in the banking sector as a significant chunk of the restructured assets will turn bad in the absence of major pick up in the economic scenario.
  • Rural demand continues to be weak as evident from the earnings of companies like HUL, which were below expectations with a 22% decline in net profit at Rs 971 crore in the third quarter ended Dec 31, 2015, as compared to Rs 1,252 crore from the previous fiscal.
  • The country’s exports have shrunk for the 13 consecutive month in a row. It fell by 18% during Apr-Dec'15 from the same period year ago.
Clearly, it is time for the Modi government to pay attention to the 'skeptics' and look at the economy in a more realistic manner.

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