Cool GDP data and hot summer

Been in Madurai-Mumbai for three days from 26th to 28th Feb. Madurai is one of the model cities chosen for ‘Swachh Bharath’ initiative. It shows. It is cleaner than before, at least in some pockets. There is an attempt to keep the shores and the river bed clean. There is also a bit of a buzz about it in the city. Good work.

Somewhat annoying to find Indian airline companies making announcements in Hindi and English on flights originating from or ending in Tamil Nadu. The AIR INDIA EXPRESS flight from Singapore to Tiruchi was too funny. Probably, it was an aircraft on lease and its messages on fastening and removing seat belts were done by a robotic voice speaking in a Western English accent.

I had not written anything about Tamil Nadu politics in the last three months. There was no need to comment. More than corruption and power-grab, etc., it also showed the dangers of the absence of proper succession planning and grooming. Insecurities of political leaders result in vacuums. They are simultaneously both insecure and believe in their indispensability too!

The political power vacuum in Tamil Nadu is being exploited, perhaps, by undesirable elements by infiltration into originally spontaneous (perhaps) protests on Jallikattu and on hydrocarbon facilities in Neduvasal.

India’s third quarter GDP estimates (year-on-year) were eagerly awaited on Feb. 28 and then there was a collective gasp of wonder at the number which showed very little impact of the demonetisation drive. I was told by my good friend Neelkanth Mishra that the proxies that the CSO uses to estimate manufacturing or retail sales growth, etc., had not sagged in the third quarter. Ergo, the growth estimate did not sag either.

What must be worrisome is the trend in Gross Fixed Capital Formation. In nominal terms, it is little under 27% of GDP (Second Advance Estimate of National Income and Expenditure on GDP, 2016-17 (Statement 2, page 10). That is not the stuff that takes GDP growth to over 8% in real terms at all. Growth is being driven by goverment spending and private consumption expenditure. Not a healthy non-inflationary mix.

OECD had coincidentally come up with its forecast for Indian GDP growth in 2017-18 and in 2018-19 in November 2016. They seem to be using 2012-13 base year prices. Their estimate for the growth rate for 2016-17 is 7.4% (CSO estimate is 7.1%).  They project economic growth accelerating from 7.4% to 76% and 7.7% in 2017-18 and in 2018-19 respectively.

Much of it depends on the Gross Fixed Capital Formation picking up as vigorously as they project – from a growth rate of 0.7% in 2016-17 to 4.7% in 2017-18 and then to 7.3% in 2018-19. With GST introduction too looming this year, I doubt if capital expenditure (capex) cycle will recover as fast as is projected.

I do not know what to make of the news that India’s gold imports surged in February. Is that an indication that demonetisation has failed to mop up cash since most gold purchaes are paid for, in cash? I am just thinking aloud here.

The news that India will have a hot summer is not good either. Parts of the country are already suffering from water shortages. In Chennai, even in upper-end apartment complexes, water rationing has started. Tamil Nadu has had very poor rainfall over the last four to five years with a small exception in 2015-16. The problem has been more acute in Southern Tamil Nadu.


3 thoughts on “Cool GDP data and hot summer

    1. There are two interviews by the Chief Statistician in ET:


      On top of that, there is a document that they put out in 2015 explaining their methodology:


      Pl. go through Sections 6.1 and 6.2.

      It is bewildering and much of it relies on ASI (Annual Survey of Industries), WPI and State-level data. To the extent that these are not updated regularly, assumptions will be used based on base-year ratios, etc. So, the true economic growth is somewhere in the universe, to be divined!

      So, numbers like 7.0%, etc., need to be reconciled with what the potential growth rate is, under the new methodology. We still do not have the full historical time-series with the new base year 2011-12.


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