The latest GDP data released for the fourth quarter of FY16 pegs the country's GDP growth at 7.9%. This is the highest quarterly growth rate achieved by the Indian economy in the year 2015-16. This has surprised the market analysts, who expected the growth rate to be much lower. In fact, a consensus Reuters poll estimated the GDP growth to be around 7.5%. Hence, these numbers look extremely good and indicate a strong rebound in our economy. Should we congratulate ourselves on these numbers? Not so soon. A closer look at the fine print on these numbers throw an interesting story.
The growth in private final consumption expenditure was 8.3% in the March quarter, the Government final consumption expenditure grew by 2.9%, while the gross fixed capital formation declined by 1.9%. The foremost contribution to the GDP growth numbers on a year on year basis after the private final consumption numbers are the increase in the line item called as 'discrepancies'. These discrepancies increased by a whopping Rs 1.13 trillion from Rs. 0.29 trillion in March 2015 quarter to Rs 1.43 trillion in March 2016 quarter. This resulted in discrepancies contributing to about 51% of the growth in GDP in the latest March quarter, the second highest contribution after the private final consumption numbers which rose Rs 1.27 trillion.
If we remove the effects of discrepancies, the actual GDP growth rate drops down to a poor 3.9%. But, it is not just about growth rates in our GDP numbers. Our concern is with the quality of data that is being used to publish these numbers. We calculate the GDP growth rates based on the increase/decrease in the absolute numbers over the year. The latest released data shows that the growth rates have remained the same while the absolute numbers have been revised downwards for the past years. This unreliability is a cause for concern to those analyzing macro trends in order to make decisions.
Read more at https://www.equitymaster.com
The growth in private final consumption expenditure was 8.3% in the March quarter, the Government final consumption expenditure grew by 2.9%, while the gross fixed capital formation declined by 1.9%. The foremost contribution to the GDP growth numbers on a year on year basis after the private final consumption numbers are the increase in the line item called as 'discrepancies'. These discrepancies increased by a whopping Rs 1.13 trillion from Rs. 0.29 trillion in March 2015 quarter to Rs 1.43 trillion in March 2016 quarter. This resulted in discrepancies contributing to about 51% of the growth in GDP in the latest March quarter, the second highest contribution after the private final consumption numbers which rose Rs 1.27 trillion.
If we remove the effects of discrepancies, the actual GDP growth rate drops down to a poor 3.9%. But, it is not just about growth rates in our GDP numbers. Our concern is with the quality of data that is being used to publish these numbers. We calculate the GDP growth rates based on the increase/decrease in the absolute numbers over the year. The latest released data shows that the growth rates have remained the same while the absolute numbers have been revised downwards for the past years. This unreliability is a cause for concern to those analyzing macro trends in order to make decisions.
Read more at https://www.equitymaster.com
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