There is Little Reason to Celebrate for Those Looking at the GDP Numbers Closely

At a time when clickbait journalism and social media information overload can cloud anyone’s judgement with ‘new’ information very easily, the reading and interpretation of economic data requires a more distinct approach, enabling better (and more lucid) understanding. More recently, two myths have been floated around the interpretation of the quarterly GDP (gross domestic product) numbers and the long-awaited release of the consumption expenditure survey data. On the former, the GDP growth for the final quarter of 2023 has surprised many street estimates, seeing a six-quarter high of 8.4 per cent. The caveats to this statistical jump have, however, been ignored. The Modi government, and those toeing its narrative, took to social media to celebrate the news, without getting into the details of how this number came about. The details help in perceiving better the projected growth observed in the quarterly estimates of national income accounting and the actual growth measured by the increase in domestic production of goods and services.One of the reasons for this sudden jump in the quarterly GDP numbers (calculated by adding gross value added with net taxes) is the rise in the share of net taxes, which hasn’t happened due to a rise in ‘tax revenue’ but due to a cut in ‘subsidies’ by the government. Government data showed that fertiliser subsidies in the October-December quarter declined by nearly 70 per cent to 307 billion rupees ($3.7 billion) from the same period a year ago.The GVA (gross value added), a cleaner measure of calculating the actual production of goods and services (and the rise/decline of it over some time) appears to have declined from 7.7 per cent in the September quarter to 6.5 per cent in the October-December quarter. Usually, the final quarter estimates of a given year, because of the festive season-driven consumption demand, see a higher actual production volume in goods and services (and is often the better performing quarter compared to others). There is no evidence of that here, looking at the GVA numbers. There are also issues in reading too much into the quarterly GDP estimates since they are “estimates” based on short-term and partial data, and are subject to a base effect (see a more detailed explanation on this given here). In short, while the government may paint a picture of growth, there is little reason for any celebration for those looking at the numbers more closely. Breaking this down further, private consumption, the largest proportion and most important overhead of India’s GDP is now expected to be 3 per cent, the slowest in over twenty years.As argued more recently, the RBI (Reserve Bank of India) consumer survey data across income classes explains this, by showing how the bottom 60 per cent of income groups (including poor, middle and low-middle income groups), are all struggling with macro-realities of low real incomes, poor employment growth, and high inflationary costs. It's only a very narrow elite group in India whose consumption is causing overall consumption demand to rise. On overall investment, while domestic private investment is still weak, most of the rise in investment for growth is coming from the public sector (the government’s capex-fuelled spending), which is helping the GVA numbers to remain a little above 6 per cent. One needs to also recall how the overall government debt to GDP number (a measure that helps one understand the limits to government borrowing) is now above 83 per cent (triggering a warning from the IMF [International Monetary Fund]). A public-investment anchored growth, through government-spent capex isn’t either very promising or sustainable from a broad-based economic growth picture. Furthermore, a higher government debt (accompanied by a rising household and corporate debt volume) is also leading to low spending by the government on essential revenue and social expenditure overheads, which can also explain the lower subsidy bill being footed by the government.The average growth rate of the Modi government’s first term (2014-19) was around 5.8 per cent, while for its second term so far, it has been around 4.3 per cent, the lowest in over thirty years. It’s easier to employ the Shining India image from extrapolations of quarterly estimates, but the interpretation of core economic data is a craft in itself. Unfortunately, myths and fiction peddled through social media and a propagandist mainstream discourse (echoing a rhetorical narrative) crowd out one’s attention from looking at the details.Another key survey-based database that was recently released, after a gap of 11 years, was the consumption expenditure survey. The statistical pitch positioned around this data argues how absolute poverty in India has been almost eliminated, and the gap between rural and urban India has been bridged substantively. This claim was made without clarifying that the poverty-line definitions used for these analyses are of the 2010-11 levels (even though the survey data and its revised methodology have gone beyond using these as any benchmark indicator).There is hardly any mainstream discussion (or focus) on how the changed methodology of the consumption expenditure survey is a critical factor while interpreting the data or in making any comparisons with past consumption data rounds. The two recent surveys with an upgraded methodology (2022-23 and 2023-24 are yet to be released) have followed an entirely different survey-data collection process, making any comparison with previous data rounds or drawing interpretations on poverty estimates quite superfluous. Dr Pronab Sen has clarified this while providing reasons for saying so. To allow growth to gain momentum, Dr Sen explains why private investments (via MSMEs [Ministry of Micro, Small and Medium Enterprises] too) need to invest in new capacity utilisation which can broadly happen through greater consumption demand, a variable that hasn’t grown much for the last eight to nine years at the expected pace. Even though the MPCE (Monthly Per Capita Consumer Expenditure) data shows how rural consumption in the last decade has inched by above 3 per cent (higher than urban consumption), rural wages remain compressed. Sen argues, “Since both agriculture and MSMEs are hurt, the overall demand for (labour-intensive) workers has moderated, which has put downward pressure on (rural) wages”. This is further explained by the 60 per cent figure of those with less than Rs 5000 of monthly income experiencing a deterioration in their general economic condition (explained here). It’s because of each of these reasons that economic data, particularly in a polarised political environment as one heads into a general election, must be understood with great caution and attention to detail. (Deepanshu Mohan is Professor of Economics and Director, Centre for New Economics Studies (CNES), Jindal School of Liberal Arts and Humanities, O.P. Jindal Global University. This is an opinion piece and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)

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There is Little Reason to Celebrate for Those Looking at the GDP Numbers Closely

The caveats to the six-quarter high 8.4 per cent GDP growth have been ignored.

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