India’s economy is growing. This much we know. With the rest of the world’s growth looking sluggish, it’s not hard to conclude that India is growing quite fast. The government claims India is the world’s fastest growing major economy. Yet, even the most ardent cheerleader of the Indian economy would have to concede that many people no longer trust India’s official Gross Domestic Product numbers. Why is that?
A look at data points from the most recent quarters offers a perfect demonstration of why analysts both in India and abroad are deeply sceptical of the government’s claims of 7.9% GDP growth between January and March. Yet a host of other indicators – from industrial growth to exports to items within the GDP figures themselves – suggest a different picture.
The latest industrial production data released last week were a case in point. In April, industrial output contracted by 0.8%, according to the Ministry of Statistics. The manufacturing sector saw a sharp dip of 3.1% compared to the previous year.
For the full year, industrial output according to the Index of Industrial Production grew by 2.4% in 2015-'16, compared to 2.8% in 2014-'15.
Meanwhile, the Purchasing Manager’s Index data, which measures business conditions, also showed only a slight improvement in May compared to April. It has grown for five straight months, but not significantly.
Despite these disappointing indicators, the government’s official manufacturing growth number for the last fiscal years was 9.3%. As Swaminathan Aiyar points out, though the IIP only measures large industries, that “seems inadequate to explain the difference” between the government’s buoyant figures and other depressing indicators.
A release put out by the ministry of statistics said that nine out of 22 sectors showed a decline in the month of April, led by electrical machinery, which declined by 56%.
A more worrying trend, however, is the substantial decline in capital goods formation – an indicator used by analysts to gauge the underlying attractiveness of the economy as an investment destination. The capital goods segment declined by about 25% in April, the sixth straight month of contraction.
The last time this segment registered growth was in October 2015.
However, the good news out of the IIP data is that consumer demand is still strong, with the consumer durables segment (cars, refrigerators and TVs etc) registering positive growth, while electricity generation formed a lion’s share of the IIP figures.
“Despite only 10% weight in IIP index, electricity contributed 50% plus of positive impact in IIP for the month of April,” wrote Pankaj Sharma, head of equities at securities firm Equirus. “This data point is important because we think that overall numbers could have been much worse if electricity generation would not have grown this much. Hence, we think that the real IIP picture is more disappointing than what we see in headline numbers.”
These numbers come in the wake of falling exports, which have been declining for 17 consecutive months now. Exports fell by 6.74% in April compared to a contraction of 5.47% in March.
While the dip in exports is being attributed to global slowdown, the sluggishness of the Chinese economy and several other factors, the fall in exports does not bode well for the country’s manufacturing sector.
The fall in exports has come accompanied with fall in imports too. Non-oil and non-gold imports declined by 17.6% in April, implying that the industrial demand is still weak. In March, this figure had fallen by 4.4%.
Meanwhile, another source of doubt about the GDP numbers come through the substantial discrepancies reported in the latest data. This is the result of an attempt to reconcile the GDP figures calculated by using three different methods. Nonetheless, the discrepancies rose by Rs 1.13 trillion during the March quarter over the previous one.
If the discrepancies were removed, GDP growth would be a mere 3.9% not 7.6%, according to an analysis by Mint. Some of this can be explained in basic disparities arising out of the government’s new method of calculating the national account. Yet, when combined with all the other data points, it only adds to the impression that we don’t have a clear idea of what exactly is happening with the Indian economy.