India’s GDP Growth, baffling

Some economists say they don’t understand how GVA growth could have accelerated compared to the previous quarter and risen above GDP growth.

The data is “perplexing,” said STCI Primary Dealership, a market-maker in government bonds. HSBC said the latest data “has come with more questions than answers.”

Typically, if inflation rates are rising then the deflator rises with them. But the GDP data this week show the deflator rising at a time when other indicators suggested inflation was cooling.

The deflators rose to 1.7% year-over-year in the quarter ended in June, compared with a 0.2% rise in the prior quarter. During the same period India’s consumer price inflation eased to 5.1% from 5.3% and wholesale prices actually deflated at a higher rate.

“These factors add to broader concern that the new growth series are out-of-sync with [frequently announced] indicators,” said Radhika Rao, an economist at DBS Bank.

According to the GDP release, manufacturing output climbed 7.2% last quarter. That’s robust by any standard, although it marks a slowdown from the 8.4% expansion it recorded in the previous quarter.

But, industrial production data between April and June show that the manufacturing sector rose just 3.6%.

Care Ratings puts it bluntly: the GDP numbers show a favorable and improving domestic economy, the situation observed on the ground is different.

Finally, and perhaps most befuddling of all, the strong rebound in construction activity begs the question, what did they build with and when did they build it?

The GDP numbers showed construction growing 6.9% year-over-year in the quarter ended in June, compared with a 1.4% year-over-year expansion in the prior three months.

Economists were surprised by the construction figures as unseasonal rains had delayed some projects last quarter.

Marathadi-Saamiyaar wrote:

I bet you saw the newsitem...but just did not like to post that.

"Of all the major economies, India has the highest growth"

As in China, the GDP figures probably overstate how well the economy is doing (in India’s case, thanks to a change in the calculations that may exaggerate the growth of small firms). Yet it still looks in decent shape. Indicators such as car sales and imports of capital goods suggest it is gathering steam. This is partly down to luck: India is hurt far less than other emerging markets by what is happening in China. Manufacturing supply chains tie Singapore, South Korea and Taiwan to the Chinese economy; India exports little there, by comparison. Oil exporters, such as Nigeria, Russia and Venezuela, have been hurt by the collapse in crude prices. But India imports 70-80% of the oil it uses so benefits greatly from cheap energy. India’s current-account deficit has narrowed to 0.2% of GDP, thanks in part to a cheaper bill for oil and other raw-material imports.

In German, Schadenfreude means ‘the pleasure that is derived from the misfortune of others’. It can be aptly used to describe Indian reactions, official or otherwise, to China’s economic slowdown, its stockmarket meltdown and the yuan’s fall.

Top Indian officials, including those in charge of economic planning, have been quick to declare that a Chinese slowdown is a big opportunity for India, which, they say, can capture the export market that China may vacate; and if India can manage 8-9% growth, it can replace China as the driver for the global economy.

Another German word Fremdschämen means ‘the feeling of embarrassment on account of what others say or do’, something that such declarations can make you feel.

Comparing India’s economy to China’s, which Indians love to do, is quite ridiculous. Because frankly there’s no comparison. China’s GDP is $10.3 trillion or five times India’s; its annual per capita income is $7,588 or 4.5 times India’s; China’s forex reserves are at $3.9 trillion or more than 10 times India’s; and China’s exports at $2.34 trillion are seven times India’s. The truth is that China is way, way ahead of India, and no, it doesn’t matter whether our quarterly growth rate is momentarily higher than theirs. If we really want to benchmark India with China, here’s one uncomfortable comparison: China grew at 10% for 20 straight years since 1991; India managed 9% plus only for three years, 2005-08.

Instead of obsessing over how to catch up with China, India should obsess about how to fix things so that its economy gets back on track.

Economists did a double take. Suddenly, all their predictions, calculations, excel sheets, graphs, rehearsed sound-bites for TV, trade figures etc appeared erroneous. They had to re-calculate and alter their data which until then showed the economy was unstable and slow.

Statisticians termed this a “statistical recovery” saying they had aligned the calculation in line with how other countries do it.

This is what the statisticians did. They changed the base year to March 2012 instead of March 2005. They also changed the measure of economic growth to market prices, not factor costs. Meaning, earlier they used to measure money paid by consumers, now they measure economic activity based on production costs. So, the contribution from factories has increased. Do I really understand this? No. Hard for anyone to really nail down exactly what they did, but the World Bank seems to get it. Some media reports said the RBI governor, Raghuram Rajan, himself doesn’t understand the new calculations.

confuzzled dude wrote:

Economists did a double take. Suddenly, all their predictions, calculations, excel sheets, graphs, rehearsed sound-bites for TV, trade figures etc appeared erroneous. They had to re-calculate and alter their data which until then showed the economy was unstable and slow.

Statisticians termed this a “statistical recovery” saying they had aligned the calculation in line with how other countries do it.

This is what the statisticians did. They changed the base year to March 2012 instead of March 2005. They also changed the measure of economic growth to market prices, not factor costs. Meaning, earlier they used to measure money paid by consumers, now they measure economic activity based on production costs. So, the contribution from factories has increased. Do I really understand this? No. Hard for anyone to really nail down exactly what they did, but the World Bank seems to get it. Some media reports said the RBI governor, Raghuram Rajan, himself doesn’t understand the new calculations.

http://www.thequint.com/business/2015/09/05/teenomics-indias-gdp-growth-and-the-numbers-game

Sounds very much like Gujarat growth myth err.. story, isn't it?

brie wrote:

confuzzled dude wrote:

Economists did a double take. Suddenly, all their predictions, calculations, excel sheets, graphs, rehearsed sound-bites for TV, trade figures etc appeared erroneous. They had to re-calculate and alter their data which until then showed the economy was unstable and slow.

Statisticians termed this a “statistical recovery” saying they had aligned the calculation in line with how other countries do it.

This is what the statisticians did. They changed the base year to March 2012 instead of March 2005. They also changed the measure of economic growth to market prices, not factor costs. Meaning, earlier they used to measure money paid by consumers, now they measure economic activity based on production costs. So, the contribution from factories has increased. Do I really understand this? No. Hard for anyone to really nail down exactly what they did, but the World Bank seems to get it. Some media reports said the RBI governor, Raghuram Rajan, himself doesn’t understand the new calculations.

http://www.thequint.com/business/2015/09/05/teenomics-indias-gdp-growth-and-the-numbers-game

Sounds very much like Gujarat growth myth err.. story, isn't it?

CD, excellent thread and excellent post this! thanks for starting this thread. you have quoted from both sides of the fence. 7% growth sounds bunkus to the common man if 7% suggests things are as hunky dory as they were last year in commerce (screw stock markets). they are NOT! commodity traders are bleeding through their nose. vehicle sales have plummeted. industrial production is down. mid-sized industries (steel, cement) are on the brink of closure because a long winter looms. 

gujarat a myth? no. that's your political vendetta. i have friends running ngos in gujarat. gujarat is doing very well. but the caveat is that they keep warning me that the hindu-muslim polarization there is very deep.