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IMF to examine India’s ‘puzzling’ growth data

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The IMF will also be looking to obtain more ‘back-casted’ historical data in addition to ‘forecasted’ data on the basis of the new methodology used by the Central Statistics Office.

Terming India’s recently revised gross domesticproduct (GDP) growth data as “puzzling” and prima facie one with “discrepancies”, the InternationalMonetary Fund (IMF) has said it will send a team of its statistics experts to NewDelhithis week to better understand the new methodology of calculation and ensure the data is error-free.

The IMF will also be lookingto obtain more ‘back-casted’ historical datain addition to ‘forecasted’ dataon the basis of the newmethodology used by the CentralStatistics Office (CSO) so that it can find out India’s potential output and thereby forecast the country’s medium-term growth rate.

Paul Cashin, IMF Mission chief for India told FE: “We are seeing discrepancies or puzzles regarding some of the highfrequency data. It has become a problem not justfor us, but for the Indianfinance ministry, the Reserve Bankof India(RBI) and allentities using the data.”
Besides, the IMF team will giveits suggestions on the newConsumer PriceIndex (CPI) based inflation dataand the methodology of its calculation (base year was shifted from 2004-05 to 2011-12 and weights of many foodand non-food items were changed). The RBI has made CPI, instead of wholesalepriceindex, the key factor in monetary policy decisions.

In the newGDP calculation method, the CSO shifted the base year from 2004-05 to 2011-12. For making the country’s growth ratesinternationally comparable, the calculation was shifted from GDP at factor costto GDP at marketprices(to arrive at GDP at marketpricesfrom factor cost indirect taxes — netof subsidies — are added).

According to the CSO, the newmethodology also captured value added attributable to efficiency in a better way and used more representativecorporatedatafrom the ministry of corporateaffairs database.

After the revision, the GDP growth in 2012-13 was revised 4.7% as per old seriesto 5.1%, while the 2013-14 databaffled many as the upward revision was huge — to 6.9% from 5%. Manufacturingand financialsector datalooked much better though the corresponding industrialoutput and bankcredit datadid not show such robustness.

Incidentally, 2013-14 was a difficult fiscal which witnessed tight monetary policy and capital outflows. Besides, despite rising bad loans and several stalled projectsin 2013-14, the newdatashowed increased privatecorporateinvestment. Growth in 2014-15 was pegged by CSO at 7.4%.
Taking this datainto account the IMF projected India’s growth at 7.5% both in 2015 and 2016 (up from 7.2% in 2014).

Cashin said the CSO had sought the IMF’s ‘technical assistance’ (TA), which, among other things, aims to improve India’s quality of economicstatistics.

However, he said the IMF is pleased that Indiahas shifted to the ‘System of National Accounts (SNA) 2008′, ‘the latestversion of the internationally accepted statistical standard for national accounts that helps in compiling measures of economicactivity’.

“Being SNA 2008 compliant is a stamp of goodquality in terms of statistics,” he added. When countries move on to SNA 2008, typically they getan outside entity — like another country’s statistical authority or the IMF — to review their calculation and givesuggestions on

On the importance of back-casting of data Cashin said so far the CSO has given the IMF the GDP growth data(on the basis of newmethodology) only for the previous four years.

“This means, we are trying to compare an apple and an orange. We don’t quite have historical dataon the orange yet to speak quite definitively on that. But if I am telling you the growth will be 7.5% (in 2015 and 2016), Indiawas obviously growing much faster than that before 2008.

Therefore, it is consistent with what our researchdepartment colleagues are saying, which is that India(like mostother emerging markets) is growing potentially slower than what it was before 2008,” he said.

Cashin added that it was hard to figure out the potential output rightnow. “It is as if we have an old Indiarunning on old numbers and a newIndia running on newnumbers. It is hard to figure out what medium term growth rateis now for India. Though we would peg it at 7.75%-8%, we will have to do more workon this by lookingat newnumbers .

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