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NOT THAT DIRE

Thomas Sowell, an American economist and social theorist of the early 1900s, observed that any statistics could be extrapolated to the point of disaster. The latest instance is Central Statistical Organization’s advance estimate of GDP growth for 2012-13 (FY13), which says that GDP growth for the current year will be just 5 per cent. By that estimate, and given the 5.4 per cent achieved from April to September 2012, growth in the second half — October 2012-March 2013 — would be 4.6 per cent. It is easy to jump to the conclusion that GDP in the second half of 2012-13 (FY13) will be slower than in the first half, but that would be wrong. Historically, the first quarter has accounted for about 22 per cent of GDP, the second 23 per cent, and the last two quarters 27 and 28 per cent respectively. In other words, the contribution of the second half to GDP is greater than that of the first half. Remember that growth is measured year-on-year (same periods in different years), not sequentially (second half over first half). Even going by the CSO’s estimate of 5 per cent for the year, GDP in the second half of FY13 will be of the order of Rs 29.03 lakh crore, compared to Rs 20.001 lakh crore in the first half. Predictably, the finance ministry dismissed the CSO estimate, as did several experts; the Reserve Bank of India put GDP growth at 5.5 per cent, and the International Monetary Fund at 5.4 per cent.

But confusion aside, the CSO’s estimate was a shock; all other indicators — forward-looking surveys like the purchase manager’s index — suggested that the sluggishness in the economy had bottomed out, and a revival was close at hand. The CSO’s advance estimates have been wrong before; in FY10, it underestimated GDP growth at 7.2 per cent (the final number was 8.6 per cent), again in FY11, at 8.6 per cent (it turned out at 9.3 per cent), and overestimated it at 6.9 per cent in FY12 (6.2 per cent was the final number). This time, the CSO also revised the GDP numbers for FY11 and FY12 downward, but is sticking to its guns on FY13 GDP growth, saying that there are no visible green shoots in the economy that suggest anything higher than 5 per cent.

The last time growth was near 5 per cent was in 2002, and before that, it was in 1992, when the then-finance minister and current prime minister, Manmohan Singh, introduced wide-ranging reforms that took India out of a crisis and put it on the road to becoming an economic power. Nothing in today’s environment feels anything like 1992. Rather, insights gleaned from other data sources by economists and analysts may not be equivalent to the CSO’s scientific deduction, but are probably more reliable than that agency’s statistics.