FORGET the recession in the manufacturing industry. Ignore the doomsayers at home and overseas. There seems finally to be some good news on the economy front. Only, it comes straight from the horse's mouth - the government.
More encouraging statistics. But with a new base year and a more representative list of sectors, is it all mere jugglery?
FORGET the recession in the manufacturing industry. Ignore the doomsayers at home and overseas. There seems finally to be some good news on the economy front. Only, it comes straight from the horse's mouth - the government.
The average Indian will see his or her income rising by 4 per cent this year. And the gross domestic product (gdp), according to advance estimates released last week by the Central Statistical Organisation (cso), will grow by 5.8 per cent in 1998-99 compared to the 5 per cent recorded in the last financial year.
That's pretty respectable when you look at, say, the US, now enjoying its longest boom, growing by 3.7 per cent annually. Or at China, which is expected to grow by a mere 7 per cent this fiscal, compared to 9-10 per cent a few years ago. And as for the currency crisis-hit Asian economies at various stages of recovery or even Japan, the less said the better (see chart next page).
So does that mean we have actually done quite well this year? And the lower forecasts given out by independent research bodies are way off target? The National Council of Applied Economic Research had forecast 5.3 per cent gdp growth, while the Bombay-based Centre for Monitoring Indian Economy had pegged the figure at 4.5 per cent. Or does it imply yet another bikini game played by government statisticians - hiding just those crucial bits?
Well, there's no straight answer. Because opinions hover at two geographical poles and some more in between. At one end is the Confederation of Indian Industry (cii), the industry body which should actually be confused by such optimistic growth figures because it has been quite gloomy all year long, but is not. Says president Rajesh Shah: The current fundamentals are strong. This year could actually trigger a turnaround for the economy.
Contrast this with what a well-known researcher-economist has to say about the advance estimates: Since the cso doesn't give out the methodology it uses, I wouldn't know how reliable these estimates are. But from the way data is collected, especially in agriculture, it's clear that they don't know their backsides from their elbows.
On a milder level, here's what Partho Sen, professor at the Delhi School of Economics, has to say: There is some amount of jugglery - by changing various bases and including new sectors - but I doubt if the world will be fooled by it. We are a low-growing, low-variance economy and the government seems to be trying to make a virtue out of it.
In simple terms, the jugglery that Sen is talking of is this. The base year of national accounts statistics has been advanced by 14 years from 1980-81 to 1993-94. This has raised growth rates in the '90s to 7.5 per cent on an average. Even the database and the methodology employed in calculating various aggregates have undergone a thorough change.
According to the cso, this was done to take into account the share of the production and services sectors that came into being in the post-reforms period. As a result, services now contribute 46.4 per cent to the gdp compared to 43 per cent in the old series. Agriculture has borne the cost of adjustment, contributing only 27 per cent now compared to 30.3 per cent in 1993-94.
The change is welcome because some of the new sectors included are: horticulture and floriculture, backyard and foreyard produce, fuelwood and deep-sea fishing, unregistered manufacturing units, repair of rail locos, TV and radio, tailoring, unorganised services. As cii says: This is probably the closest we've reached to calculating the real growth rates.
Many disagree, including a senior agriculture ministry official. Says he: The base year change may not amount to much, but addition or subtraction of a few commodities would make a great difference. Also, the sources of data could be suspect. For instance, horticulture figures are not given out by the directorate of economics and statistics. The cso has taken the National Horticulture Board estimates. Also, what's the logic behind using backyard and foreyard crop estimates? The cso must reveal its methodology and also make its sources of data or surveys public.
Clearly, most of the question marks over the advance estimates come out of the disreputable state of various government statistics. Especially when national accounts statistics in India go through four stages of production: advanced, quick, revised and final (not including the provisional P that sometimes appears). Such multi-level data often work at cross purposes.
In the industry sector for instance, even as the index of industrial production (iip) logged a miserable growth of 3.5 per cent between April and December 1998, against 7.1 per cent over the corresponding period the previous year, the cso projects a growth of 5 per cent for the full year. In manufacturing, the contrast is even more glaring: 3.7 per cent according to iip versus 5.7 per cent according to the advance estimates.
The main reason: instead of taking into account only iip data, the cso has shifted to figures provided by the Annual Survey of Industries. The obvious question: why does the cso have two sources of industrial production data for calculating growth? To minimise possible errors, as also perhaps to maximise general confusion!
Or take agriculture, the main prop for 1998-99's growth. Single-handedly, the sector will contribute 5.3 per cent to national income, with foodgrain production seen at 195 million tonnes. Does that sound plausible, with the rabi crop yet to be harvested and kharif output less than satisfactory?
It does for the common man. The low prices of vegetables and the recent drop in inflation are enough pointers to a good crop. Says G.S. Ram, economic advisor in the agriculture ministry: Over the years, the share of the rabi crop in foodgrains is increasing, with the kharif crop now accounting for a little over 50 per cent. And we are expecting a good rabi harvest. Kharif was good only in sugarcane and cotton; rice, coarse grains, jute all were low. And of course, the high growth makes sense when extrapolated from a very low base last year's agriculture growth now stands revised to negative 1.3 per cent compared to 0.1 per cent in the old series.
In agriculture, however, trend growth is more important. Comments eminent agriculture economist Ashok Gulati: Our advance estimates are always optimistic. I was expecting a growth rate of about 3 to 4 per cent. For the Ninth Plan period, I would now expect an average less than 3 per cent. That's not much really. Even the Planning Commission has reduced its expectation to 3.9 per cent.
In reality, much of the agriculture sector growth could have come in from hitherto unacknowledged areas like livestock which includes dairying with a weight of 16-17 per cent, poultry with a weight of 6-7 per cent, and horticulture. Says Gulati: In oecd countries, dairying accounts for 50 per cent of agriculture output, so that's a good sign. Even horticulture has boomed in recent years.
Despite indications of a good harvest, doubts are still being expressed over the agriculture growth figure. One reason is of course the sketchy reporting of farm sector data. Though Gulati maintains that our system is good enough among developing countries, data collection processes remain riddled with loopholes. For instance, gross cropped area is estimated after sowing, and that's going up every year despite increasing urbanisation. With the collapse of the traditional method of collecting data from the patwaris, there is no crop pattern intelligence for 40 per cent of the landholdings. In six or seven big states like Tamil Nadu and West Bengal, there are no National Sample Survey (nss) field studies. Yet, there's a rise in the total acreage reported. Asks Shubhasis Gangopadhyay, economist with the Indian Statistical Institute: If you work on nss time series data, you actually find that the area is going down. That makes sense. Still, even the legendary nss has a sample size of 1,20,000.
Blame it on the characteristic cynicism of the practitioners of the dismal science if you will, but unreliable data quality seems to have marred the cheer of a possible turnaround. Especially when one remembers that despite the financial engineering, the fiscal deficit remains around 5.6 per cent plus with three more bleak months to go before the year end.