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India's GDP growth overestimated by 2.5% during 2011-2017: Former CEA Arvind Subramanian

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https://www.livemint.com/news/india/india-s-gdp-growth-overestimated-by-2-5-during-2011-2017-arvind-subramanian-1560239804132.html

 

India’s statistics may have been painting a far rosier picture of economic growth than the more modest reality of the past decade.

The nation has held the crown of the world’s fastest-growing major economy until recently, but a new study by former Chief Economic Adviser Arvind Subramanian says the expansion was overestimated between 2011 and 2017. Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper, published by the Center for International Development at Harvard University.

The overestimation occurred after the previous Congress-led government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.

 

 

 

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Let's say capacity utilisation (occupancy) of cabs and hotel rooms increased due to ola/uber/Oyo etc. resulting in far lesser buying of new cabs and in far lesser investment in new hotels. This will hamper GDP. But in the end, productivity is the same , even with less number of cabs/rooms.  Perhaps unemployment percentage is more relevant data to know as to how much the common man is bearing the brunt.

Edited by randomGuy

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12 minutes ago, randomGuy said:

Let's say capacity utilisation (occupancy) of cabs and hotel rooms increased due to ola/uber/Oyo etc. resulting in far lesser buying of new cabs and in far lesser investment in new hotels. This will hamper GDP. But in the end, productivity is the same , even with less number of cabs/rooms.  Perhaps unemployment percentage is more relevant data to know as to how much the common man is bearing the brunt.

There isn’t good news on unemployment rate too. Highest in 45 years.

Edited by Haarkarjeetgaye

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Already posted in the other thread. But yeah this deserves a separate thread. Don't know what else bullshit we've been fed over the years by the government. Technically we're in a slowdown a stage before recession (correct me if i'm wrong). The next 5 years will be painstaking.

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The contributing effects(if there were any) of Demonetization and GST should also be revealed.  Another question is when did he know this and whether it was deliberately withheld from the public before the elections.

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1 minute ago, Stan AF said:

The contributing effects(if there were any) of Demonetization and GST should also be revealed.  Another question is when did he know this and whether it was deliberately withheld from the public before the elections.

It obviously was withheld. GDP and unemployment numbers are known every year. Unemployment numbers were leaked unofficially but government dubbed them as fake. 

 

In my opinion, Pain will stay till manufacturing picks up strongly. I don’t see a single sector which is creating a plethora of jobs

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5 minutes ago, Stan AF said:

Already posted in the other thread. But yeah this deserves a separate thread. Don't know what else bullshit we've been fed over the years by the government. Technically we're in a slowdown a stage before recession (correct me if i'm wrong). The next 5 years will be painstaking.

Don't know about GDP, maybe due to demographics of India GDP will sustain (recession won't happen), in developed world recession is a good chance, anyways once every 8 yrs or so on average, it happens in USA, with worsening demographics, good chance it will happen...

But deflationary forces are strong in today's technology world ... corporate earnings have been in recession...maybe they bottomed out.

 

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The demo crying hasn’t stopped from the left. Demo will be good in the long term. The money should in binary than printed papers. This is the only India can control money laundering. The biggest threat to any country from a security perspective is money laundering.

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8 hours ago, randomGuy said:

Don't know about GDP, maybe due to demographics of India GDP will sustain (recession won't happen), in developed world recession is a good chance, anyways once every 8 yrs or so on average, it happens in USA, with worsening demographics, good chance it will happen...

But deflationary forces are strong in today's technology world ... corporate earnings have been in recession...maybe they bottomed out.

 

Indian Economy: It's serious. Multiple structural downturns make this slowdown unlike others

Unlike earlier slowdowns, this one has all the ingredients of a perfect storm. How long will it take for official interventions to ease the difficulties the Indian economy has to face?

 |  8-minute read |   11-06-2019
 
 
 

Prime Minister Narendra Modi’s grand victory in the General Elections is not the only historic event of 2019. Equally historic is the unprecedented slowdown in the economy that leaves us with a sombre puzzle — what is easier: winning a mega election in India or reviving an ailing mega economy? 

No points for guessing the answer. The 2019 election mandate gives you the hint. 

 

However, when it comes to the state of the economy, going by the Reserve Bank of India (RBI)’s straight thumbs down (from 7.2% to 7%) to India's FY20 growth estimates and revenue administration’s cry for a cut in FY20 tax collection target, the path to economic recovery appears daunting, stretching well beyond expectations. 

modi690_061019033918.jpgHe's won the election: But can he win the economy? (Photo: India Today)

A bizarre breakdown

For an economic slowdown in India, this time, it is different. Unlike past downturns, driven by global upheavals, bad weather, inflation, currency volatility and high oil prices, India is now in the middle of a stubborn structural slowdown. In its recent bouts with decelerating growth, India could bounce back each time thanks to a resilient domestic economy — but it is for the first time since economic liberalisation in 1991 that the country is facing a downturn primarily led by private consumption.

 

In fact, private consumption by its gigantic population that contributes over 55%-60% to gross domestic product (GDP) was the force behind India's rapid bounce-back after global turmoil in the late years of the twentieth century (Asian Financial Crisis) and in early years (Lehman collapse and global banking meltdown) of the 21st century. 

What makes this slowdown even more complex is that the Indian economy is facing the sharpest decline in its savings rate in 20 years.

 

Coupled with ever growing piles of bad loans in formal and shadow banking (non-banking finance companies), India is staring at its first experience with borrowing defaults — and contagion in the financial system. 

When an ailing economy needs a massive dose of vitamins in the form of funds, the funding pipeline of governments (centre and states) has dried up, due to rising deficit and sinking revenues, while the financial system is going through an acute liquidity crunch due to rising borrowing costs and risk aversion among financiers.

 

A never-seen-before shrink

On the one hand, private capital expenditure has been sluggish for six years — on the other, the consumption engine that was pulling the economy seems to be losing steam.

The ongoing consumption breakdown is fairly broad-based and a structured one. Housing demand has been sluggish for the past several years. Auto sales volumes saw a slowdown from the second half of 2019 and general consumption (based on volumes of consumer staple companies) from the fourth quarter of 2019.

The ongoing consumption slump in the world's fastest growing economy is a result of a toxic mix of a decline in savings, credit, income and business confidence — all in tandem, of which there are no traces in the recent past. This has led to a synchronised collapse of demand in credit-driven sectors such as housing and auto (leveraged consumption) and income-driven buying of consumer staples.

savings690_061019034009.jpgThe Money Crunch: Along with savings, credit-driven demand has also fallen. (Photo: India Today)

Defaults and contagion

Thanks to excess liquidity in the system post demonetisation, NBFCs had been at the forefront of lending in the last three years. While banks were struggling with bad loans, NBFCs reportedly accounted for 75% of incremental auto loans in FY18. It is no coincidence, therefore, that the consumption story turned bad only after the NBFC crisis erupted and got prolonged. The consumption scale-up in the past three to four years was not driven by a rise in personal income (income growth was actually weak), but because of a significant expansion in lending by NBFCs.

NBFCs are not allowed to take deposits. They borrow money from banks or sell commercial papers to mutual funds to raise money. 

In the last few years of high inflows of cash, banks and investors parked their money with mutual funds. The supply of cheap funds from banks and mutual funds helped NBFCs grow their loan portfolios at double the pace of banks.

As inherent economic weakness has started hitting the credit recovery, NBFCs have found themselves in the massive mismatch between assets and liabilities that has led to downgrades in their ratings and then, eventual defaults. According to a report by global brokerage CLSA, the recent default of Dewan Housing Finance (DHFL) on Rs 1000 crore dues can expose Rs 1 lakh crore in borrowing (from banks and mutual funds) to risk of default/haircuts.  

With a shortage of funds and rising capital cost, NBFCs were forced to cut credit flow to sectors key to consumption — this brought India to an extraordinary crash in leveraged (auto, housing, consumer durables) consumption.

 

Mega savings drought

A deep dive in household savings data reveals the cause of declining demand of discretionary and staple items — the savings data (2013-18) suggests that household physical savings rate was partly replaced by consumption spending. Over the last few years, households have apparently gradually reduced consumption due to insufficient income growth.

In fact, the biggest hurdle for quick revival could be that India’s aggregate savings rate has seen a large and sustained decline since FY13 (by four per cent of GDP).

India has witnessed similar declines in previous downturns (FY00-02, FY08-10) — but those were modest and short-lived.

After a downtrend since 2010, bank deposits nosedived in the past one year with growth breaching below 10%. The low deposit growth is the result of structural and cyclical factors, such as constant moderation in nominal GDP growth and a change in households' behaviour from savings-focused investor to being a consumption-focused consumer.

 

Multiple slowdowns

The existing economic crisis becomes even more complex given the fact that multiple slowdowns  — income, savings, liquidity stress — exist amid the mega consumption slowdown.

Income slowdown: With rural wage growth at the lowest in three years and unemployment at a 45-year high, the year-on-year growth in per capita income had reportedly touched its bottom in 2017-18 as per income estimates released by the Central Statistics Office (CSO) in January this year. 

 

Savings slowdown: This is evident from the data of gross savings, bank deposits and physical savings in real estate. 

Liquidity stress-driven lending slowdown: This is the top reason behind the slowdown in consumption. In FY19, the cost of capital apparently rose with a rise in currency in circulation. This is effectively a liquidity squeeze for formal finance. Alongside, the public borrowing rose, which further squeezed liquidity available to the private sector, leading to a further increase in capital costs.

Pain first — relief later

rbii690_061019034047.jpgNot yet roaring: The slowdown is complicated; it will take time for the RBI's interventions to provide tangible relief. (Photo: India Today)

The complexity of the slowdown has put the RBI and the government in a quandary, forcing them to take measures that may aggravate the pain at the outset, before the revival happens.

 

In spite of three consecutive rate cuts by RBI, interest rates have been rising. As per the RBI’s release on lending and deposit rates, fresh lending rates increased by 5 bps in April 2019 to 9.8 per cent. This has reportedly led to 25 bps jump in interest rates for PSU banks. A shrinking deposit base and the tepid deposit growth are two key hindrances in effective transmission of rate-cuts. The market expects that interest rates transmission will be limited in contrast to macro factors and benchmark rate cuts.

The RBI has denied any direct or indirect lines of liquidity for NBFCs despite the fact that the government was willing to bail out shadow banks. The denial of liquidity to NBFCs may lead to further defaults in the financial system and make things worse for credit market and growth in the medium run.

Meanwhile, due to fiscal pressure and the possible contraction in revenues, the government will be forced to cut spending — which may lead to a further slowdown. 

As far as policy intervention is concerned, to break the vicious cycle of a decline in private investment and savings rate both, the government will have to stimulate the economy by monetary and fiscal easing. A fiscal expansion (0.5-1 per cent of GDP towards infra, rural economy) supported by easier monetary conditions is highly desirable.

India's slowdown is a result of several vicious cycles working in sync — and we have no option but to live with it for at least the next 12-18 months before the greenshoots of revival come to the fore.

 

https://www.dailyo.in/politics/india-s-economic-growth-india-s-gdp-slowdown-in-india-modinomics/story/1/31061.html

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Unemployment will be the downfall of the government because there is not enough jobs for all the youths entering work age even if they are educated,maybe universal income is a good idea and some family planning.

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2 hours ago, Haarkarjeetgaye said:

Anyone who is a staunch supporter of current PM, share how they feel about the discrepancy on the numbers for GDP, Unemployment rate and NPAs

 

 

 

Many of the unemployed youth are working in service sectors they are not paid as per their qualifications but it's still better than UPA days 

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41 minutes ago, YUSER_ said:

Many of the unemployed youth are working in service sectors they are not paid as per their qualifications but it's still better than UPA days 

How is it better than UPA days?

How do you take the discrepancy in numbers, in stricter words blatantly hiding the data. Are staunch supporters ok with it?

Edited by Haarkarjeetgaye

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5 hours ago, Haarkarjeetgaye said:

Anyone who is a staunch supporter of current PM, share how they feel about the discrepancy on the numbers for GDP, Unemployment rate and NPAs

 

 

 

if the same GDP calculations have been used since 2011 then why you asking about PM.  method has been same now that was used in 2011-12.

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6 hours ago, Haarkarjeetgaye said:

How is it better than UPA days?

Because these days youth can atleast pay EMI of education loans it was not the case during UPA days

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13 hours ago, YUSER_ said:

Because these days youth can atleast pay EMI of education loans it was not the case during UPA days

There must be some other reason for NPAs increasing then. Which sector do you see giving jobs to youths. Why do you think the GDP is less by 2.5% and unemployment rate is highest in 45 years.

 

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Quote

 

https://www.ndtv.com/india-news/pms-panels-point-by-point-rebuttal-to-arvind-subramanians-claim-on-gdp-2055961

 

PM's Panel's Point-By-Point Rebuttal To Arvind Subramanian's Claim On GDP

 

 

The Economic Advisory Council to the Prime Minister (EAC-PM) on Wednesday rejected the claims of former Chief Economic Adviser Arvind Subramanian regarding over-estimation of GDP growth after 2011, saying his analysis ignores data on services and agriculture and shows blind trust in a private firm CMIE.

 

In a paper released by EAC-PM, India's GDP estimation methodology stands at par with its global standing as a major and responsible economy. Primary contributors of the paper are economists Bibek Debroy, Rathin Roy, Surjit Bhalla, Charan Singh, Arvind Virmani.

 

Last week, the advisory body had said it would issue a point-to-point rebuttal of Mr Subramanian's research paper.

In a research paper, Mr Subramanian, who stepped down last year, said India's economic growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in methodology for calculating GDP.

 

Mr Subramanian's paper titled ''India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications'', published at Harvard University, also comes at a time when concerns have been raised in various quarters about the official economic growth numbers.

 

Mr Subramanian was the CEA in the finance ministry for nearly four years from October 2014.

 

Observing that Chief Economic Adviser (CEA) Subramanian seems to have made a "hurried attempt to draw conclusions" about India's complex economy and its evolution, the paper said he has used 17 high frequency indicators, but ignores the representation of ''services sector (60 per cent in GDP) and ''agriculture sector'' (18 per cent of GDP) in the analysis.

 

The paper notes that Mr Subramanian used 17 indicators to express his skepticism about the growth rates after 2011-12. Majority of the 17 indicators have been taken directly from the Centre for Monitoring Indian Economy (CMIE), a private agency that is not a primary source of information but collects it from different sources, it said.

 

"For anyone who reads Dr Subramanian's paper, it is evident that he trusts CMIE but distrusts CSO (Central Statistics Office)... This blind trust in a private agency (CMIE) and blind distrust in a government institution that has served India (CSO) appears unwarranted for a neutral academic," it said.

 

The paper further said the former CEA has overlooked the tax data.

 

The EAC-PM paper said Mr Subramanian chooses to overlook tax data arguing that "we do not use tax indicators because of the major changes in direct and indirect taxes in the post-2011 period which render the tax-to-GDP relationship different and unstable, and hence make the indicators unreliable proxies for GDP growth".

 

Unlike many indicators, it said tax data is not collected through surveys or by agencies through arcane techniques, these are hard numbers and should be an important indicator of growth.

 

"Further, there have been no major changes in tax laws until the end period in the author's analysis (March 31, 2017). GST was introduced on July 1, 2017. The author's logic of not using tax data appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts," it said.

 

The EAC-PM paper also noted that India's GDP estimation is by no means a perfect exercise.

"Is it better than before? Yes.

 

"Is the process to further improve it in place? Yes," it added.

 

It further said Mr Subramanian, in the capacity of CEA in the Ministry of Finance, has presided over the army of government economists and statisticians and is aware of the enormous magnitude and complexity of the exercise to compute GDP of the continent-size highly diverse emerging economy of India.

 

"To consider attempting to approximate GDP (gross domestic product) of such a country on the basis of some correlations and four variables using simplistic econometric techniques and challenging the existing edifice of data collection is not only demoralising to those dedicated personnel but also technically inappropriate," it added.

The government had earlier said the base year of the GDP series was revised from 2004-05 to 2011-12 and released on January 30, 2015, after adaptation of the sources and methods in line with the System of National Accounts 2008.


 

 

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On 6/12/2019 at 10:16 AM, Haarkarjeetgaye said:

https://www.livemint.com/news/india/india-s-gdp-growth-overestimated-by-2-5-during-2011-2017-arvind-subramanian-1560239804132.html

 

India’s statistics may have been painting a far rosier picture of economic growth than the more modest reality of the past decade.

The nation has held the crown of the world’s fastest-growing major economy until recently, but a new study by former Chief Economic Adviser Arvind Subramanian says the expansion was overestimated between 2011 and 2017. Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper, published by the Center for International Development at Harvard University.

The overestimation occurred after the previous Congress-led government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.

 

 

 

Pakistani fauji kid what about the Pakistani deficit .... any comment

 

Pakistan's current account deficit contracts 29.5% to $9.6b

https://tribune.com.pk/story/1954073/2-current-account-deficit-contracts-29-5-9-6b/

 

 

 

 

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2 hours ago, sukhoi said:

Pakistani fauji kid what about the Pakistani deficit .... any comment

 

Pakistan's current account deficit contracts 29.5% to $9.6b

https://tribune.com.pk/story/1954073/2-current-account-deficit-contracts-29-5-9-6b/

 

 

 

 

Calm down. Bangladesh Economy has already overtaken Pakistan (not just in terms of GDP but various other human measures too). And they dont have CPEC or nuclear bombs or Saudis nor they have Sharia or that many ultras and Jihadist.

 

In few years times, Most of Indian states will have GDP comparable to Pakistan

Edited by mishra

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