What is it about Economics that makes people hum and haw? Are we to believe that the last quarter was very good for India's GDP because the economy was doing rather well, beyond expectations? Or, does the truth lie in the fact that the past is looking worse than it was thought to be, and hence, the present is good enough to make the Sensex zoom?
If you are not an Economist, you should be confused now, and that is the perfect thing to be in the eyes of a cynic. Data analysis is a mean sport.
Though unsubstantiated, British columnist Bernard Levin is believed to have said, "The future is bleak. The past is not getting any better either."
GDP Figures: The Substance Behind the Show?
A smart data agency, which must include India's National Statistical Office (NSO), can put that saying to good use, as we shall see. The headlines are screaming that India's GDP grew wildly beyond expectations of 8.4% year-on-year in the October-December 2023 quarter.
Behind the handsome numbers in manufacturing and construction lies the Economist's rope trick: the Low Base Effect. Shall we call it LBE? That makes it look close to cricket's LBW, something in which the batsman is as good as bowled if he does not watch his step.
The NSO says GDP growth for the 2022-23 fiscal year was lower than previously estimated. So whoever said the past is not getting any better needs to be told, with the hindsight of data revision, that the past may not be getting better, but it can be made to look worse, and that strangely makes data look good in the present.
The NSO actually revised down the GDP growth for the October-December quarter of 2022-23 to 4.3% from 4.5% and for the number the entire year to 7.0 % from 7.2%.
Economists make a decent living by quibbling on the second decimal point but look at the full-year number: GDP growth for 2023-24 has been revised up to 7.6% from 7.3%. Discounting the LBE, the estimated uptick in overall GDP is 0.3 percentage points. That doesn't look beyond wild expectations. So what happened?
GVA-GDP Anomaly Overlooked
Things get clearer when you dig deeper. Gross Value Added (GVA) is the real stripped-down view of GDP growth, like weighing someone on an electronic machine after asking the person to take off her shoes.
When taxes are added to the GVA, you get the GDP. Net taxes are estimated to have surged by a whopping 32% year-on-year in the October-December quarter. Economists had estimated a GDP growth of 6.5% basically on GVA calculations.
Thanks to increased tax revenues, the GDP growth at 8.4% looks wildly beyond expectations. This reality check that got missed out in boastful tweets and casual headlines, quickly flashed on TV screens.
Look harder for deeper, funnier insights. The current year has seen a significant stock market boom.
It is logical, therefore, that those who booked capital gains made considerable advance tax payments during the October-December quarter (in addition to industries and individuals that pay tax on their incomes). Tax collections thus, must have bloated the Q3 GDP estimate out at the end of February.
Bizarrely, you could say the stock markets have gone up in March because they had gone up in the previous quarter to bloat the data that just arrived on the scene to stir a new round of optimism!
True, an 8.4% print in GDP is quite a headline-grabber. However, are we not supposed to sober up when confronted with a full-year uptick of only 0.3 percentage points?
How Perception Trumps Facts in Economics
Common sense should make us say that given all the brouhaha about the low base effect, the GDP is called gross domestic product for a reason. Net net, as the PowerPoint-loving presentation finishes will say, it is all quite gross.
Between the rational sobriety of longer-term calculations and the impulsive, irrational exuberance of the stock markets, falls the real economy.
We do need to call time on revision of data that disrupts the current estimates, and more important, lowers the credibility of future outlooks. The NSO probably needs to issue disclaimers resembling the Securities and Exchange Board of India: "Advance estimates are subject to revision risks. Read your data carefully before screaming out headlines."
There is something called 'Narrative Economics' that plays a role in the real economy because perceptions influence behaviour. Often, there is a big gap between hard data and the popular narrative.
It does make sense for a government body like the NSO to knock in some plain language notes that will not make the amateur economist or journalists with a deadline jump to conclusions carried forward by exuberant market speculators with unfailing optimism.
Yes, we know data-crunchers are like scorers in a cricket match, not umpires. But that still leaves room for some footnotes that can be turned into headlines or significant chunks of news reports. With great data comes great responsibility.
Data-Trackers Must Look Before They Leap
An old joke goes: An economist will give tomorrow the reason why what he predicted yesterday did not come true today. Data revisionists are unsuspecting accomplices in this game.
Like the Reserve Bank of India cautioning customers against phishing and SEBI asking investors not to fall for get-rich-quick schemes, we could do with an NSO that asks data-watchers to watch their step.
The gap between the GDP as printed and the GVA as a hardnosed concept sometimes resembles a yawning gap between the bat and the pad in cricket.
Reasonable people in the news business are supposed to make sense of data, but those with deadlines and those who would rather not spoil a headline by digging deeper are more the rule than the exception. We need a rear-view mirror warning : Data on the past may go lower than it appears now.
(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard, and Hindustan Times. He can be reached on Twitter @madversity. This is an opinion article and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)
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