A man gets a haircut from a roadside barber at a market in Mumbai earlier this month. Estimating such small retail trade has proven tricky for the government.
Feb. 17, 2015
4 COMMENTS
NEW DELHI—India might be the world’s fastest-growing large economy right now—or the country’s statisticians might have miscounted.
On Tuesday, the agency in charge of the computation offered details about why, after changing the way it estimates gross domestic product last month, it now believes economic output will expand by 7.4% in the year ending in March. At 7.5%, India’s revised growth estimate for the fourth quarter of last year beat China’s 7.3%.
The growth boost, the Central Statistics Office said in a 10-page document, is partly due to better measurement of manufacturing activity, made possible by a new database of corporate balance sheets.
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The statistics office also explained why the Indian economy was a lot smaller a few years ago than previously estimated. Activity by small retailers and wholesalers had been overstated, the document said, “by a very large margin.”
ENLARGE
T.C.A. Anant, India’s chief statistician, said the new figures for gross domestic product offer a more accurate picture of economic activity in the world’s second-most-populous country. “There is a lot of modernization which is happening,” he said.
Doubts about the figures remain, however. A wide swath of other data, from corporate revenues to auto sales, indicates an economy struggling to escape the doldrums.
“When they generate such a ridiculous outcome, they need to go back and find out what could potentially be wrong in the data set,” said Chetan Ahya, chief Asia economist at Morgan Stanley.
Measuring an economy as sprawling and short on formal record-keeping as India’s isn’t easy.
A mammoth share of the country’s output is produced by individuals and small enterprises that don’t pay taxes and aren’t registered with the government. These curbside barbers, neighborhood motorcycle repairmen, pushcart fruit vendors and others account for two-thirds of India’s nonfarm workforce. That amounts to 150 million people, more than the population of Japan.
But one major segment of them—mom-and-pop stores and small-time wholesalers—contributes less to India’s GDP than previously thought, according to a government survey conducted in 2011 and 2012. Previously, statisticians relied on a 15-year-old survey that measured those businesses. The data revision caused the Indian economy’s total size in the new base year—the 12 months that ended in March 2012—to shrink by 2%.
The statistics office also said it updated what it does between detailed surveys to estimate domestic trade and other services connected to the production of goods. Previously, it used indicators of output volume—how many goods are being produced—to approximate the value added to the economy, or how much those goods are worth.
New data sources now allow added value to be gauged more precisely, it said. Domestic trade, household repairs and telecommunications will be tracked using data on sales-tax collections; for hotels, real estate, accountants and lawyers, corporate data will be used.
Better measurement of added value is crucial for understanding a rapidly developing economy like India’s, the statistics office said, particularly in manufacturing.
Manufacturers in India aren’t just assembling products anymore, said Mr. Anant, the chief statistician. They are developing, marketing and selling them too, and often in franchises and other retail arrangements. They are also bundling them with warranties and other services.
Little if any of this activity had previously been reflected in GDP, Mr. Anant said. “I’m capturing a part of the value chain which I was not capturing well earlier,” he said.
“The new series is conceptually different,” he added, so it may naturally appear out of sync with what we thought we knew about the economy’s trajectory. “Analytical understandings will have to adapt.”
Other, smaller updates were long overdue. To gauge the construction sector, previous GDP data relied on a survey of building materials from 1980, said Ashish Kumar, director-general of the statistics office. Now based on a fresh study, the new output numbers include data on glass and asphalt use for the first time.
Not all are convinced. Neelkanth Mishra, a Mumbai-based analyst at Credit Suisse, said growth getting revised up bothers him less than the economy’s size getting revised down. However much the informal economy was being overestimated in the past, Mr. Mishra said, even more was being underestimated.
“They’ve lost themselves a lot of credibility,” he said.
India’s statistics office already wins few points for consistency and user-friendliness. GDP data are released with long delay and then get periodically revised—or corrected. on Aug. 31, 2010, the office announced 3.7% GDP growth for the April-to-June quarter—then, a day later, admitted the figure was based on computational errors. Growth, the office said, was actually 10%.
Measuring an economy isn’t like measuring a coastline. The data—which in India include everything from housing costs and the chicken population to how much timber, firewood and leaves used for animal feed are collected from forests—can be frustratingly inexact. And extrapolating to the rest of the economy requires heaps of simplifying assumptions.
Even for Mr. Anant, getting a handle on the Indian economy is a work in progress. He said the newly revised growth estimate for the year that ended in March 2014—6.9%, up from 4.7%—is already scheduled for another revision sometime before January 2016.